Demonstration Problem (Question 1) The Power Tool Division of ABC Hardware sells

Question

Demonstration Problem (Question 1) The Power Tool Division of ABC Hardware sells one product, Jig Saw, and has the following data for the second quarter: 1,200 units $150 Units of output Price per unit Variable cost per unit Total fixed costs 48,000 Required: Determine I. Quarterly operating profit when 1,200 units are sold. 2. Break-even volume in units and sales dollars. 3. Contribution margin ratio. 4. Sales dollars and units needed to generate an operating profit of $57,000. Number of units sold that would produce an operating profit of 15% of sales dollars.

Explanation / Answer

1.) Quaterly operating profit = annual operating profit / 4

Sales 1200 x 150 = 180,000

Less: variable cost 1200 x 90 = 108,000

Contribution 72,000

Less: Fixed cost. 48,000

Operating income 24,000

Quaterly operating income = 24,000/4 = 6,000

2.) Break even (units) = Fixed cost/(selling price - variable cost)

48,000/(150-90)

= 800 units

  Break even (sales dollar) = fixed cost/contribution margin

48,000 ÷ [(150 - 90)/160]

= 48,000 ÷ 40% = 120,000

3.) Contribution margin ratio = (sales - variable cost)/sales

= (150 - 90)/150 = 40%

4.) Units to be sold = (fixed cost + desired operating profit)/contribution

= (48,000+57,000)/60 = 1750 units

Sales dollar = units x selling price

= 1750 x 150 =$262,500

5.) Let 'x' be the number of unit

(150x - 90x) - 48,000 = 15% of 150x

60x - 48,000 = 22.5x

x = 48,000/37.5

x = 1280 units

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