Exercise 5-12 In 2016, Manhoff Company had a break-even point of $244,000 based

Question

Exercise 5-12 In 2016, Manhoff Company had a break-even point of $244,000 based on a selling price of $6 per unit and fixed costs of $173,000. In 2017, the selling price and the variable costs per unit did not change, but the break-even point increased to $442,000. Your answer is correct. Compute the variable costs per unit and the contribution margin ratio for 2016. (Round Variable cost per unit to 2 decimal places, e.g. 2.25 and Contribution margin ratio to O decimal places, e.g. 20.) Variable costs per unit Contribution margin ratic LINK TO TEXT VIDEO APPLIED SKILLS Your answer is incorrect. Try again. Compute the increase in fixed costs for 2017. (Round answer to 0 decimal places, e.g. 1,225) Increase in fixed cost O APPLIED SKILL

Explanation / Answer

Calculation of variable cost and Contribution margin ratio for 2016: Contribution ratio= Fixed cost/Break even point*100                                    =173000/244000*100= 70.90% Contribution Ratio is 71% Variable cost ratio=100-contribution ratio=100-70.90%=29.10% Variable cost per unit= Selling price* variable cost ratio                                             = 6*0.2910=$1.746 Variable cost per unit= $1.746 Calculation of increase in fixed cost: Fixed cost for 2017= Break even point*Contribution margin ratio                                       =442000*0.709=$313378 Increase in fixed cost=313378-173000=$140378 Increase in fixed cost=$140378 Assumption: solving the question using actual figures instead of rounded off figures.

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