Promotion Industries manufacturers license plates for automobiles. The license p
ID: 2341688 • Letter: P
Question
Promotion Industries manufacturers license plates for automobiles. The license plates sell for $10.50 each. During 2008, Miller sold 750,000 plates incurring total variable costs of $1,462,500 and fixed costs of $3,268,720.
(a) Determine the contribution margin per unit.
(b) Determine the breakeven point in units for 2008.
(c) Determine the amount of profit earned in 2008.
(d) Determine the breakeven point in units for 2009, assuming variable costs increase by 20% and fixed costs remain unchanged
Explanation / Answer
a) Calculation of contribution margin per unit: Variable cost per unit= variable cost/number of plates = 1462500/750000= $1.95 Contribution= selling price- Variable cost per unit = 10.50-1.95=8.55 Contribution margin per unit is $8.55 b) Calculation of break even point in units: Break even sale in units= Fixed cost/ contribution per unit = 3268720/8.55= 382306.43 units Break even point in unit sales= 382306.43 units c) Calculation of profit: Particulars Total Sales (750000*10.50) 7875000 Less: Variable Cost 1462500 Contri bution(Sales- variable cost) 6412500 Less:Fixed Cost 3268720 Net operating income 3143780 Profit is $3143780 d) Calculation of break even point of 2009: Variable cost per unit= 1.95*1.2=2.34 Contribution= selling price- Variable cost per unit = 10.50-2.34=8.16 Contribution margin per unit is $8.16 Break even sale in units= Fixed cost/ contribution per unit = 3268720/8.16= 400578.43 units Break even point in unit sales= 400578.43 units
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