Suppose that the price is $30, unit variable cost is S6/unit, and total fixed co
ID: 2423649 • Letter: S
Question
Suppose that the price is $30, unit variable cost is S6/unit, and total fixed costs are $1,600. Required: Compute the unit contribution margin and contribution margin ratio: unit CM= CM ratio= (enter CMR as a fraction of 1, not as %) Write down the CVP relation (version 2): profit as a function of sales revenue. (fill in the missing numbers in an equation like Profit = 0.35 * Revenue - 50). Profit = Revenue - Based on the CVP relation in (b), what is the breakeven revenue? Based on the CVP relation in (b), what is the sales revenue required to achieve target profit of $5,000?Explanation / Answer
2(a). Contribution Margin = Revenues per Unit – Variable expenses Per Unit
= $30-$6
= $24
Contribution Margin Ratio = Contribution Margin Per unit/Sales price per unit
= $24/$30
= .80 or 80%
2(b). Profit = Contribution Ratio * Revenue-Fixed Cost
Profit = .80*Revenue-$1600
2(c). Profit = Contribution ratio*Revenue-Fixed Cost
0 = .80revenue-$1600
.80 Revenue = $1600
Revenue = $1600/.8
= $2000
Break even Sales is the sales where the target profit is 0
2(d). Profit = Contribution ratio*Revenue-Fixed Cost
$5000 = .80*Revenue-$1600
.80Revenue = $5000+$1600
Revenue = $6600/.80
= $8250
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