In the month of March, Style Salon services 590 clients at an average price of $

Question

In the month of March, Style Salon services 590 clients at an average price of $140. During the month, fixed costs were $22,295 and variable costs were 65% of sales.

(a) Determine the contribution margin in dollars, per unit, and as a ratio.

Contribution margin

$

Contribution margin per unit

$

Contribution margin ratio

%

(b) Using the contribution margin technique, compute the break-even point in dollars and in units.

Break-even sales

$

Break-even sales

units

Contribution margin

$

Contribution margin per unit

$

Contribution margin ratio

%

Explanation / Answer

variable cost per unit = 140*.65 = $ 91 per unit

contribution per unit = 140- 91 =$ 49 per unit

a)contribution margin = 49* 590 = $ 28,910

contribution per unit =$ 49

CM ratio =contribution /selling price

                = 49/ 140

                = .35 or35%

B)BEP =Fixed cost/ CMratio

         = 22295 / .35

        = $ 63,700

BEP (units) =Fixed cost/contribution per unit

                  = 22295 / 49

                  = 455 clients

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