Contribution Margin Ratio a. Yountz Company budgets sales of $2,400,000, fixed c
ID: 2559532 • Letter: C
Question
Contribution Margin Ratio
a. Yountz Company budgets sales of $2,400,000, fixed costs of $525,000, and variable costs of $1,560,000. What is the contribution margin ratio for Yountz Company? (Enter your answer as a whole number.)
%
b. If the contribution margin ratio for Vera Company is 40%, sales were $3,400,000, and fixed costs were $800,000, what was the income from operations?
$
Break-Even Sales and Sales to Realize Income from Operations
For the current year ended October 31, Yentling Company expects fixed costs of $14,000,000, a unit variable cost of $200, and a unit selling price of $300.
a. Compute the anticipated break-even sales (units).
units
b. Compute the sales (units) required to realize income from operations of $1,400,000.
units
Explanation / Answer
Contribution Margin = 35%
Net Income = $560000
BEP = 140000 Units
BEP for desired profit = 154000 Units
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Contribution margin ratio = (Sales – variable cost)/ sales
= (2400000 – 1560000)/2400000
= 840000/2400000
= 0.35 or 35%
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Contribution margin ratio = (Sales – variable cost)/ sales
.40 = (3400000 – Variable cost)/ 3400000
1360000 = 3400000 – Variable cost
Variable cost = 3400000 – 1360000
= 2040000
Net income = Sales – variable cost – Fixed cost
= 3400000 – 2040000 – 800000
= 560000
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Break-even point is the level of sales that a company must achieve to reach at no profit no loss situation,
The formula to calculate BEP (in units) = Total Fixed cost/(selling price per unit - variable cost per unit)
Where,
Fixed cost = $14000000
Selling price = 300 per unit
Variable cost = 200 per unit
Let's put all the values in the formula to get the BEP in units,
BEP = 14000000/ (300 - 200)
BEP = 14000000/100
BEP = 140000 Units
So to reach the BEP company must sell 140000 units
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Sale required to achieve desired profit = (Fixed cost + Desired profit)/ (Sales price per unit - Variable cost per unit)
Where,
Fixed cost = $14000000
Selling price = $300
Variable cost = $200
Desired profit = $1400000
Let's put all the values in the formula,
Required sale = (14000000 + 1400000)/ (300 - 200)
= 15400000/ 100
= 154000
So to reach desired profit of $1400000 required units that must be sold is 154000 units
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Hope this answer your query.
Feel free to comment if you need further assistance. J
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