D)The project has a higher than normal degree of technical risk. Cracked Foundat
ID: 2596684 • Letter: D
Question
D)The project has a higher than normal degree of technical risk. Cracked Foundations Inc. (Formerly known as Ziggy's Rocks and Dirt) specializes is preparing foundations for new home construction. The company performs 50 projects per year with an average price of $10,000 per project. Historical cost information indicates that construction costs average $7, per project. There are also corporate overhead costs: the fixed component is $100,000 and the variable component is 10% of revenue. Use this information to answer questions 1 1-14. 000 11) What is CFI's gross margin percentage if they perform 50 projects? 12) What is CFI's contribution margin percentage if they perform 50 projects? cooe 15,000 13) How many projects would CFI need to perform to breakeven assuming average prices and costs? 14) If CFI wanted to earn a profit of $50,000, how many projects would be needed assuming average prices and costs? o 0 lo 15) Your specialty parts department makes two products: loader buckets and excavator buckets. The following data are available:Explanation / Answer
11) Gross margin percentage = ((Total Revenue - Total Cost of goods sold) / Total Revenue)*100
= ((500000 - 350000)/ 500000)*100
= 30%
12) Total Contribution Margin percentage = ((Total Revenue - Total variable cost)/ Total Revenue)*100
= ((500000 - 100000)/ 500000)*100
= 80%
13) Break-even in Units = Total Fixed Costs per year /Contribution Margin per unit
= ((7000*50)+(100000) / 9000
= (350000+100000)/9000
= 50 units per year
14) If you want to earn a profit of $50,000 then CFI has to sale more than the break even sale units.
Breakeven sales = 50 units ; Fixed cost = 1,00,000
So, it took 50 units to cover up the fixed cost of $1,00,000. Therefore, it will take another 25 more units to make a profit of $50,000
Answer: 75 units
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