Sport Ready produces sports socks. The company has fixed expenses of $8 Read the

Question

Sport Ready produces sports socks. The company has fixed expenses of $8 Read the reguirements Requirement 1. Compute the contribution margin per package and the contribution margin ratio Begin by identifying the formula to compute the contribution margin per package Then compute the contribution margin per package. (Enter the amount to the nearest cent.) 0,000 and variable expenses of S0.80 per package. Each package sells for $1.60 Contribution margin per unit The contribution margin per package is $ Compute the contribution margin ratio. (Enter the ratio as a whole percent) Begin by identifying the formula to compute the contribution margin ratio Contribution margin ratio The contribution margin ratio is

Explanation / Answer

Answer 1

Sales Price Per unit - Variable cost per unit = Contribution Margin Per unit

$1.60 - $0.80 = $0.80

The contribution margin per package is $0.80

Contribution Margin Per unit / Sales Price Per unit = Contribution margin ratio

$0.80 / $1.60 = 50 %

The contribution margin ratio is 50 %

Answer 2

( Fixed cost + Operating income ) / Contribution margin per unit = Break even sales in units

( $80,000 + $0 ) / $0.80 = 100,000 units

The  break even sales in units is 100,000 units

( Fixed cost + Operating income ) / Contribution margin ratio = Break even sales in dollars

( $80,000 + $0 ) / 50 % = $160,000

The  break even sales in dollars is $160,000

Answer 3

The number of package to achieve operating income of $25,000 is 131,250

Explanation :

Target operating income = $25,000

Target total contribution = Fixed costs + Target operating income = $80,000 +  $25,000 = $105,000

The number of package required = Target total contribution / Contribution margin per unit

= $105,000 / $0.80 = 131,250

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