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Robbie’s Ribs has the following sales and cost information:

Average selling price per pound of ribs - $11.50Variable expenses per pound:

Raw material - $3.70

Variable labor and overhead - $3.20

Annual fixed costs:

Production expenses - $37,300

Selling and Administrative expenses $15,186

The company’s tax rate is 30%. The company’s costs have slowly been rising and profits rapidly falling. Robbie Shaw, company president, has asked your help in answering the following questions:

What is the contribution margin per pound of ribs? The contribution margin ratio?

What is the break-even point in pounds of ribs? In dollars of sales

How much revenue must be generated to produce $24,500 after-tax income? How many pounds of ribs would this represent?

Explanation / Answer

Calculate contribution margin per pound of ribs and contribution margin ratio :

Contribution margin per pound of ribs =Sale per pound of ribs-Variable expenses per pound

                                                      = 11.50-(3.70+3.20)

Contribution margin per pound of ribs = 4.60

Contribution margin ratio = 4.60*100/11.50 = 40%

Calculate break even point :

Break even point = Fixed cost/contribution margin per unit = (37300+15186)/4.60 = 11410 Pounds of ribs

In dollar sales = 11410*11.50 = 131215

Calculate revenue for after tax 24500 income :

Before tax income = (24500*100/70) = 35000

Required Revenue = (37300+15186+35000)/.40 = 218715

Pounds represent = 218715/11.50 = 19019 pounds

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