Custom Hunter, Ltd. sells a customized gun pouch that sells for $32.00. The cont

ID: 2417948 • Letter: C

Question

Custom Hunter, Ltd. sells a customized gun pouch that sells for $32.00. The contribution margin ratio on the product is 55%. Last month the company earned $23,320 when 3,475 units were sold. What is total fixed cost? Compute the break-even point in units. Compute the break-even point in sales dollars. How much additional profit would Custom Hunter, Ltd. earn if sales r increases by 30%? Refer to the origin, data. Management is considering price by 10% and increasing advertising by $12,560. If these changes are made, management believes that sales revenue will increase should these by $31,680 changes be made?

Explanation / Answer

a) Fixed cost

Contribution - Net income

17.6 * 3,475 - 23,320

= $37,840

B) BEP(units) = fixed cost / contribution per unit

= 37,840/17.6

= 2,150 units

C) BEP (sales) = 2,150 *32 = $68,800

d) Sales revenue increase by 30%

32 *130% = $41.60

Contribution = 41.60 @55% *3,475 = $79,508

Profit increase = 79,508 - (37,840 + 23,320)

= $18,348

e) Increase in sales revenue = $31,680

contribution = $31,680 @55% = $17,424

Increase in income = $17,424 - 12,560 = $4864

yes