Apple, Inc. informs us that the Fixed Costs to produce iPods are $35,000 per mon

Question

Apple, Inc. informs us that the Fixed Costs to produce iPods are $35,000 per month. Fixed Costs to produce the Macintosh computers are also $35,000 per month. iPods sell for $300 each and have a variable cost of $60. Macs sell for $3,000 and have a variable cost of $800.

Calculate the following for each product:

(a) Contribution to overhead and profit (in dollars per unit sold)
(b) Contribution percentage (as a percentage of the selling price)
(c) The number of units which must be sold in a month to break-even (revenues = total costs)
(d) The dollar amount of sales revenue at the break-even point


D. Using the financial statements you produced above, calculate the following ratios:

1. Working Capital
2. Current Ratio
3. Quick Ratio (when using Accounts Receivable use the value NET of Allowance for Bad Debts)
4. A/R Turnover (assume beginning, ending, and average A/R are all the same)
5. Days

Explanation / Answer

Ans : A) For iPod (a) Contribution for overhead and profit- $240. (Since Contribution=Saleprice-Variablecosts) (b) Contribution percentage-80%. (Since contribution %age aka PV ratio=Contribution per unit/Saleprice per unit) (c) Breakeven point (in units)=Fixed costs/Contribution per unit, which is $35000/$240 146Units(Units cannot be fractional) (d) Sales value at breakeven is 146units*$300=$43800 OR At breakeven Total costs(Fixed+Variable) equals to sales revenue, therefore Total costs at 146unit output is VC(146Units*$60) plus FC($35000) equals to 43800,(due to approximations). B) For Macintosh computers : (Based on above concepts) (a) Contribution = $2200 ($3000-$800) (b) Contribution %age = 73.33% ($2200/$3000) (c) Breakeven point (In units)= $35000/$2200= 16 Units (d) Sales value at breakeven = 16units*$3000=$48000.

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