home / study / business / accounting / questions and answers / contribution marg

Question

home / study / business / accounting / questions and answers / contribution margin ratio, break-even sales revenue, ...

Your question has been answered! Rate it below.

Let us know if you got a helpful answer.

Question

Contribution Margin Ratio, Break-Even Sales Revenue, Sales Revenue for Target Profit

Schylar Pharmaceuticals, Inc., plans to sell 130,000 units of antibiotic at an average price of $22 each in the coming year. Total variable costs equal $1,086,800. Total fixed costs equal $8,000,000.

Required:

1. What is the contribution margin per unit? Round your answer to the nearest cent.
$

What is the contribution margin ratio? Round your answer to two decimal places. (Express as a decimal-based answer rather than a whole percent amount.)

2. Calculate the sales revenue needed to break even. Round your answer to the nearest dollar.
$

3. Calculate the sales revenue needed to achieve a target profit of $245,000. Round your answer to the nearest dollar.
$

4. What if the average price per unit increased to $23.50? Recalculate the following:

a. Contribution margin per unit. Round your answer to the nearest cent.
$

b. Contribution margin ratio. Enter your answer as a decimal value (not a percentage), rounded to four decimal places.

c. Sales revenue needed to break even. In your computations, use your rounded answer from part (4-b) above for the contribution margin ratio, and round your final answer to the nearest dollar.
$

d. Sales revenue needed to achieve a target profit of $245,000. In your computations, use your rounded answer from part (4-b) above for the contribution margin ratio, and round your final answer to the nearest dollar.

Explanation / Answer

1) Selling price per unit = $ 22

Variable cost per unit = $1086800/130000 = $8.36

Contribution margin per unit = selling price per unit - variable cost per unit = $22 - $8.36 = $13.64

Contribution margin ratio = contribution per unit / selling price per unit = $13.64 / $22 = 0.62

2) Break even sales revenue = Fixed cost / contribution margin ratio = $8000000 / 0.62 = $12903226

3) Sales revenue required

= (Fixed cost + target profit) / contribution margin ratio

= ($8000000 + $245000) / 0.62 = $13298387

4)

a) Selling price per unit = $ 23.50

Variable cost per unit = $1086800/130000 = $8.36

Contribution margin per unit = selling price per unit - variable cost per unit = $23.50 - $8.36 = $15.14

b) Contribution margin ratio = contribution per unit / selling price per unit = $15.14 / $23.50 = 0.6443

c) Break even sales revenue = Fixed cost / contribution margin ratio = $8000000 / 0.6443 = $12416576

d) Sales revenue required

= (Fixed cost + target profit) / contribution margin ratio

= ($8000000 + $245000) / 0.6443 = $12796834

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

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