PRUDLI a problems on your Scantron 886E. Ples Intron 886E. Please show your work
ID: 2540054 • Letter: P
Question
PRUDLI a problems on your Scantron 886E. Ples Intron 886E. Please show your work. Instructions: Answer the following proble bution format income statement is presente 1. Banner Company's most recent contribution f Sales Less variable expenses Contribution margin Less fixed expenses Net loss $75,000 45,000 30,000 36,000 $(6,000) roduct for $15 per unit. There is no beginning or er inventories. Required: a. What is the company's contribution margin ratio? b. Compute the company's break-even point in sales dollars. C. Compute the company's break-even point in units sold. d. Compute the total variable expenses at the break-even point. e. How many units would have to be sold to earn a target profit of $9,000? f. The sales manager is convinced that a $5,000 increase in the advertising budget would increase total sales by $30,000. Would you advise the increased advertising outlay?Explanation / Answer
Answer
Sales
$75000
Sale price per unit
$15
Sold Unit
5000
Units
per unit
Amount
Sales
5000
$15
$75000
(-) variable cost
5000
$9
$45000
Contribution margin
5000
$6
$30000
(-) Fixed expenses
$36000
Net Income (Loss)
($6000)
A
Contribution margin
30000
B
Sales
75000
C=A/B
Contribution margin ratio
40%
Requirement 2
A
Fixed Cost
36000
B
Contribution margin ratio
40%
C=A/B
Break Even in sales dollars
90000
Requirement 3
A
Break Even in sales dollars
$90000
B
Sale price per unit
$15
C=A/B
Break even in Units sold
6000
Requirement 4
A
Variable cost per unit
$9
B
Units at Break Even point
6000
C=AxB
variable expenses at break even
$54000
Requirement 5
A
Target profit
$9000
B
Fixed expenses
$36000
C=A+B
Total contribution margin required
$45000
D
Contribution margin per unit
$6
E=C/D
Units to be sold to earn target income of $9000
7500
Requirement 6
Units
per unit
Amount
Sales
7000
15
$105000
(-) variable cost
7000
9
$63000
Contribution margin
7000
6
$42000
(-) Fixed expenses
$41000
Net Income (Loss)
$1000
Since, Net Income is increasing from ($6000) to $1000 after incurring advertising expense, the increased advertising outlay is ADVISED.
Sales
$75000
Sale price per unit
$15
Sold Unit
5000
Units
per unit
Amount
Sales
5000
$15
$75000
(-) variable cost
5000
$9
$45000
Contribution margin
5000
$6
$30000
(-) Fixed expenses
$36000
Net Income (Loss)
($6000)
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