Required: A. Compute the break-even point in units (i.e., tons) for Hacker Aggre

Question

Required:

A.  Compute the break-even point in units (i.e., tons) for Hacker Aggregates.
tons

B.  Compute the contribution margin ratio for Hacker Aggregates. Round your answer to two decimal places. Ensure that answer is entered in decimals and not in percentages.

C.  If Treva decides to spend $100,000 on advertising and the company expects the advertising to increase sales by $200,000, should the company increase the advertising?

Direct labor 51,500,000 Variable production overhead 200,000 Fixed production overhead 350,000 Selling and administrative expenses: Variable 50,000 Fixed 300,000

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Contribution Margin Per Unit = (Total Sales - Total Variable Costs)/Total Unit Sales

Contribution Margin Per Unit = [5000000 - 1500000 (Direct Labor) - 200000 (Variable Production Overhead) - 50000 (Variable Selling and Administrative Expenses)]/25000 = 130 per unit

Break Even Point = Fixed Costs/Contribution Margin Per Unit = (350000 + 300000)/130 = 5000 Units

Part B:

Contribution Margin Ratio = Contribution Margin Per Unit/Sales Per Unit = 130/(5000000/25000) = .65

Part C:

1)

Revised Contribution Margin= Revised Sales - Variable Cost = (5000000 + 200000) - 1560000 (Direct Labor) - 208000 (Variable Production Overhead) - 52000 (Variable Selling and Administrative Expenses) = 3380000

Contribution Margin will increase by = 3380000 - 3250000 = 130000

2)

Net Income will increase by = 130000 - 100000 (Increase in Fixed Cost) = 30000

Notes:

Direct Labor, Variable Production and Variable Selling and Administrative Expenses will increase as per the increase in sales value by 200000.

Direct Labor = 1500000*52/50 = 1560000

Variable Production = 200000*52/50 = 208000

Variable Selling and Administrative Expense = 50000*52/50 = 52000

Thanks.

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