Exercise 18-9 Contribution margin and break-even LO P2 Blanchard Company manufac

Question

Exercise 18-9 Contribution margin and break-even LO P2 Blanchard Company manufactures a single product that sells for $210 per unit and whose total variable costs are $168 per unit. The company's annual fixed costs are $575,400. (a) Compute the company's contribution margin per unit. Contribution margin (b) Compute the company's contribution margin ratio Choose Numerator: Choose Denominator: Contribution Margin Ratio Contribution margin ratio = (c) Compute the company's break-even point in units Choose Numerator: Choose Denominator: Break-Even Units Break-even units (d) Compute the company's break-even point in dollars of sales Choose Numerator: Choose Denominator: Break-Even Dollars Break-even dollars

Explanation / Answer

Answer to Exercise 18-9:

Part (a):
Contribution Margin per unit = Selling price per unit – Variable Cost per unit
Contribution Margin per unit = $210 - $168
Contribution Margin per unit = $42

Part (b):
Contribution Margin Ratio = Contribution Margin / Sales * 100
Contribution Margin Ratio = 42 / 210 * 100
Contribution Margin Ratio = 20%

Part (c):
Break Even Units = Fixed Cost / Contribution Margin per unit
Break Even Units = 575,400 / 42
Break Even Units = 13,700 units

Part (d):
Break-Even Dollars = Break Even Units * Selling Price per unit
Break-Even Dollars = 13,700 * $210
Break-Even Dollars = $2,877,000

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