Suppose that the price is $45, unit variable cost is $18/unit, and total fixed c

Question

Suppose that the price is $45, unit variable cost is $18/unit, and total fixed costs are $1,000.

Required:

a) Compute the unit contribution margin and contribution margin ratio:
unit CM=  
CM ratio=  (enter CMR as a fraction of 1, not as %)

b) Write down the CVP relation using CMR: profit as a function of sales revenue.
(fill in the missing numbers in an equation like Profit = 0.35 * Revenue - 50).
Profit =  * Revenue -  

c) Based on the CVP relation in (b), what is the breakeven revenue (if necessary, round up to the nearest integer)?


d) Based on the CVP relation in (b), what is the sales revenue required to achieve target profit of $5,000?

Explanation / Answer

a) Unit contribution margin = Selling price - Variable cost = 45 - 18 = $ 27

Contibution margin ratio = Contribution margin / Selling price x 100 = 27 / 45 or 0.60

b) Profit =

c) Break-even revenue = Fixed costs / unit contribution margin x price = 1,000 / 27 x 45 = $ 1,666.77 or $ 1667

d) Sales revenue required to acheive a target profit of $ 5,000 = (fixed costs + target profit) / unit contribution margin x price = 6,000 / 27 x 45 = $ 10,000

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.