cornerstones 3rd eddition by Hansen, Don R #4 The Leonardo Company had the follo
ID: 2462209 • Letter: C
Question
cornerstones 3rd eddition by Hansen, Don R
#4
The Leonardo Company had the following functional income statement for the month of July 2016:
Sale ($20 x 20,000 units ) $400,000
Cost of goods sold:
Direct materials $60,000
Direct labor 40,000
Variable factory overhead 120,000
Fixed factory overhead 50,000 270,000
Gross profit $130,000
Selling and administrative expenses:
Variable $20,000
Fixed $50,000 $70,000
Operating income $60,000
There were no beginning and ending inventories.
Required:
a. Calculate the contribution margin per unit.
b. Calculate the contribution margin ratio.
c. What is the break-even point in units?
d. What is the amount of sales in dollars needed to obtain a before-tax profit of $40,000?
Explanation / Answer
Solving the above equation for x which equals break-even point in sales units, we get:
Fixed cost = $ 100,000
P = $ 20
V = $ 12
Break even sales units = 100,000/8 = 12,500 units
Profit before tax = 40,000
Sales - total cost = Profit before tax
Lets sales unit be X
20X - (12X + 100,000) = 40,000
8X - 100,000 = 140,000
8X = 240,000
X = 240,000/8 = 30,000
Per unit Sale ($20 x 20,000 units ) 400,000 20 Cost of goods sold: Direct materials 60,000 3 Direct labor 40,000 2 Variable factory overhead 120,000 6 Fixed factory overhead 50,000 3 Total 270,000 Gross profit 130,000 Selling and administrative expenses: Variable 20,000 1 Fixed 50,000 3 Total selling expenses 70,000 4 Operating income 60,000 3 Total variable cost 12 Contribution margin = sales price - variable cost Contribution margin 8 Contribution margin ratio 40.0%Related Questions
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