Exercise 18-12 (Part Level Submission) In 2016, Manhoff Company had a break-even
ID: 340815 • Letter: E
Question
Exercise 18-12 (Part Level Submission)
In 2016, Manhoff Company had a break-even point of $264,000 based on a selling price of $8 per unit and fixed costs of $167,000. In 2017, the selling price and the variable costs per unit did not change, but the break-even point increased to $402,000.
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(a)
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 0 decimal places, e.g. 25.)
Variable costs per unit
$
Contribution margin ratio
%
compute the increase in fixed costs for 2017
Explanation / Answer
Answer:-a)-Break even sales in dollar =$264000
Selling price per unit =$8 per unit
Break even sales in units =$264000/$8 per unit =33000 units
On BEP sales profit is zero hence contribution equals to fixed costs (ie-$167000)
Sales- fixed cost = Variable cost
$264000-$167000 = $97000
Variable cost per unit =$97000/33000 units
=$2.94 per unit
Contribution margin ratio =($167000/264000)*100
=63%
BEP sales in dollars 2017 =$402000
Break even sales in units =$402000/$8 per unit =50250 units
Variable cost =50250 units*$2.94 per unit =$147735
Contribution margin =$402000-$147735 =$254265
On BEP sales profit is zero hence contribution equals to fixed costs (ie-$254265)
Increase in fixed costs for 2017 =$254265-$167000 =$87265
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