A company had the following results for this year: Sales (15,000 units) Variable
ID: 2411429 • Letter: A
Question
A company had the following results for this year: Sales (15,000 units) Variable expenses Fixed expenses Net profit $300,000 180,000 80,000 $40,000 Answer the following questions independently. (a) What are the company's breakeven sales in dollars? (2 marks) (b) What are the company's breakeven sales in units? (2 marks) (c) What is the company's contribution margin in dollars? (2 marks) (d) What is the company's contribution margin ratio? (2 marks) (e) How many additional units must be sold to increase net profit from the current $40,000 to $100,000? (4 marks)Explanation / Answer
Answer a.
Contribution Margin in dollars = Sales - Variable Expenses
Contribution Margin in dollars = $300,000 - $180,000
Contribution Margin in dollars = $120,000
Contribution Margin Ratio = Contribution Margin in dollars / Sales
Contribution Margin Ratio = $120,000 / $300,000
Contribution Margin Ratio = 40%
Breakeven Sales in dollars = Fixed Expenses / Contribution Margin Ratio
Breakeven Sales in dollars = $80,000 / 0.40
Breakeven Sales in dollars = $200,000
Answer b.
Contribution Margin per unit = Contribution Margin in dollars / Number of units sold
Contribution Margin per unit = $120,000 / 15,000
Contribution Margin per unit = $8.00
Breakeven Sales in units = Fixed Expenses / Contribution Margin per unit
Breakeven Sales in units = $80,000 / $8.00
Breakeven Sales in units = 10,000
Answer c.
Contribution Margin in dollars = Sales - Variable Expenses
Contribution Margin in dollars = $300,000 - $180,000
Contribution Margin in dollars = $120,000
Answer d.
Contribution Margin Ratio = Contribution Margin in dollars / Sales
Contribution Margin Ratio = $120,000 / $300,000
Contribution Margin Ratio = 40%
Answer e.
Additional Units sold = Additional Profit / Contribution Margin per unit
Additional Units sold = $60,000 / $8.00
Additional Units sold = 7,500
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