Contribution Margin Ratio, Break-Even Sales Revenue, Sales Revenue for Target Pr

Question

Contribution Margin Ratio, Break-Even Sales Revenue, Sales Revenue for Target Profit

Schylar Pharmaceuticals, Inc., plans to sell 130,000 units of antibiotic at an average price of $22 each in the coming year. Total variable costs equal $1,086,800. Total fixed costs equal $8,000,000.

Required:

1. What is the contribution margin per unit?
$

What is the contribution margin ratio?

2. Calculate the sales revenue needed to break even. Round your answer to the nearest dollar.
$

3. Calculate the sales revenue needed to achieve a target profit of $245,000. Round your answer to the nearest dollar.
$

4. What if the average price per unit increased to $23.50? Recalculate the following:

a. Contribution margin per unit. Round your answer to the nearest cent.
$

b. Contribution margin ratio. Enter your answer as a decimal value (not a percentage), rounded to four decimal places.

c. Sales revenue needed to break even. In your computations, use your rounded answer from part (4-b) above for the contribution margin ratio, and round your final answer to the nearest dollar.
$

d. Sales revenue needed to achieve a target profit of $245,000. In your computations, use your rounded answer from part (4-b) above for the contribution margin ratio, and round your final answer to the nearest dollar.
$

Explanation / Answer

Contribution Margin Ratio, Break-Even Sales Revenue, Sales Revenue for Target Profit

Schylar Pharmaceuticals, Inc., plans to sell 130,000 units of antibiotic at an average price of $22 each in the coming year. Total variable costs equal $1,086,800. Total fixed costs equal $8,000,000.

Required:

1.
contribution margin per unit = 22-1086800/130000 = $13.64

contribution margin ratio = 13.64/22=0.62

2. sales revenue needed to break even= 8,000,000/0.62=$12,903,226

3. sales revenue needed to achieve a target profit = (8,000,000 + $245,000)/0.62 =$13,298,387

4.

a. Contribution margin per unit = 23.50 -1086800/130000 = $15.14

b. Contribution margin ratio = 15.14/23.50=0.6443

c. Sales revenue needed to break even= 8,000,000/0.6443=$12,417,437

d. Sales revenue needed to achieve a target profit =(8,000,000 + $245,000)/0.6443=$12,796,834

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