Hawke Caribbean Sales has developed the following projections for the upcoming y

Question

Hawke Caribbean Sales has developed the following projections for the upcoming year of operations.

Sales of 100,000 units at $5. Units sold equal units produced

Variable costs for 100,000 units:

Direct material $125,000

Direct labor 100,000

Variable overhead    30,000

Selling and administrative expense    45,000

Total fixed costs 120,000

What is Hawke’s projected breakeven point in units?

       a. 60,000

       b. 54,000

       c. 500,000

       d. 120,000

What is Hawke’s projected breakeven point in dollars?

       a. $500,000

       b. $120,000

       c. $130,000

       d. $300,000

What is the projected contribution margin ratio?

       a. 25%

       b. 40%

       c. 50%

       d. None of the above

Explanation / Answer

Particulars

Amount

Sales

$500,000

Less: variable cost

Direct material

($125,000)

Direct labour

($100,000)

Variable cost

($30,000)

Selling and administrative expense

($45,000)

Contribution margin

$200,000

Less: Fixed cost

($120,000)

Profit

$80,000

1

Contribution margin ratio

Contribution margin ratio = (Contribution/sales)*100

Contribution margin ratio = 200,000/500,000*100

40%

What is the projected contribution margin ratio?

Ans

b. 40%

2

What is Hawke’s projected breakeven point in units = Fixed cost/Contribution per unit

Contribution margin per unit = $200,000/100,000 units = $2

Breakeven units = 120,000/$2 = 60,000 units

Ans

Option (A) 60,000 units

3

What is Hawke’s projected breakeven point in dollars?

Breakeven point in dollars = units breakeven * selling price

(60,000 units *$5) = $300,000

Ans

Option (D) $300,000 is correct

Particulars

Amount

Sales

$500,000

Less: variable cost

Direct material

($125,000)

Direct labour

($100,000)

Variable cost

($30,000)

Selling and administrative expense

($45,000)

Contribution margin

$200,000

Less: Fixed cost

($120,000)

Profit

$80,000

1

Contribution margin ratio

Contribution margin ratio = (Contribution/sales)*100

Contribution margin ratio = 200,000/500,000*100

40%

What is the projected contribution margin ratio?

Ans

b. 40%

2

What is Hawke’s projected breakeven point in units = Fixed cost/Contribution per unit

Contribution margin per unit = $200,000/100,000 units = $2

Breakeven units = 120,000/$2 = 60,000 units

Ans

Option (A) 60,000 units

3

What is Hawke’s projected breakeven point in dollars?

Breakeven point in dollars = units breakeven * selling price

(60,000 units *$5) = $300,000

Ans

Option (D) $300,000 is correct

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