* Use the following information to answer the questions below. Honest Company ma

Question

* Use the following information to answer the questions below. Honest Company makes and sells a single product. The product's selling price is $100 per unit. Its unit variable expense is $75. The total fixed expenses are S50,000. Currently, the company is selling 3,000 units of the product. 9. Given the information above, make the contribution format income statement 10. Compute a. Unit contribution margin b. Contribution margin ratio c. Break-even point in sales dollars d. Sales units required to earn a profit of S300,000.

Explanation / Answer

9) Contribution Format Income Statement Particulars Amount (in $) Sales(3000*100) 3,00,000 Variable cost(3000*75) 2,25,000 Contribution margin(Sales - Variable Cost) 75,000 Fixed expenses 50,000 Net operating income 25,000 10) a) Calculation of unit contribution margin: Unit contribution margin= selling price- variable cost per unit                                                   = 100-75= $25 Unit contribution margin= $25 b) Calculation of contribution margin ratio: Contribution Margin ratio= Contribution per unit/ Selling price*100= 25/100*100= 25% Contribution margin ratio= 25% c) Calculation of break even point in dollars: Break even point in dollar sales= Fixed cost/ Contribution Margin ratio                                                                =50000/0.25=$200000 Break even point in dollar sales=$200000 d) Calculation of number of units: Number of units= (Fixed cost+ profit)/ contribution per unit                                             =(50000+300000)/25=14000 units Number of units= 14000 units

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