Exercise 11-12 In 2016, Swifty Company had a break-even point of $483,000 based

Question

Exercise 11-12 In 2016, Swifty Company had a break-even point of $483,000 based on a selling price of $7 per unit and fixed costs of $193,200. In 2017, the selling price and the variable costs per unit did not change, but the break-even point increased to $590,000 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 ratio LINK TO TEXT LINK TO TEXT VIDEO: APPLIED SKILLS Compute the increase in fixed costs for 2017 Increase in fixed cost Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT LINK TO TEXT VIDEO: APPLIED SKILLS

Explanation / Answer

first let us know the break even units

=>break even sales / selling price per unit

=>$483,000 / $7

=>69,000 units.

break even units = fixed costs / contribution per unit

=>69,000 units = $193,200 / contribution per unit

=>contribution per unit = $193,200 / 69,000

=>contibution per unit = $2.80.

actually

contribution per unit = sales price - variable cost

=>$2.80 =$7.00 - varialble cost

=>variable cost = $7 - $2.80

=>$4.20.

Therefore, variable cost = $4.20.

Contribution margin ratio = contribution per unit /sales price per unit

=>$2.80/ $7.00

=>0.40

=>40%

FIxed cost increase in 2017..

break even point = fixed costs / CM ratio

=> $590,000 = fixed cost / 0.40

=> fixed cost = $590,000 *0.40

=>$236,000

increase in fixed costs = $236,000 - $193,200 =>$42,800.

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