Based in Italy, Datura, Ltd., is an international importer-exporter of pottery w
ID: 2463856 • Letter: B
Question
Based in Italy, Datura, Ltd., is an international importer-exporter of pottery with distribution centers in the United States, Europe, and Australia. The company was very successful in its early years, but it’s profitability has since declined. As a member of a management team selected to gather information for Datura’s next strategic planning meaning, you have been asked to review it’s more recent contribution margin income statement for the year ended December 31, 2010, which appears below.
Datura, Ltd.
Contribution Margin Income Statement
For the Year Ended December 31, 2010
In 2010, Datura sold 15,000 sets of pottery.
For each set of pottery sold in 2010, calculate the (a) selling price, (b) variable purchase cost, (c) variable distribution cost, (d) variable sales commission, and (e) contribution margin.
Calculate the breakeven point in units and in sales euros.
Historically, Datura’s variable costs have been about 60 percent of sales. What was the ratio of variable costs to sales in 2010? List three actions Datura could take to correct the difference.
Sales revenue €13, 500, 000 Less variable costs Purchases €6,000,000 Distribution 2,115,000 Sales sommissions 1,410,000 Total variable costs 9, 525,000 € 3,975,000 Contribution margin Less fixed costs Distribution € 985,000 Selling 1,184,000 General and administrative 871,875 Total fixed costs 3,040,875 Operating income € 934,125Explanation / Answer
a) selling price = 13,500,000/15,000 = 900
(b) variable purchase cost = 6,000,000/15,000 = 400
(c) variable distribution cost = 2,115,000/15,000 = 141
(d) variable sales commission = 1,410,000/15,000 = 94
(e) contribution margin =3,975,000 =265 per unit
Breakeven point in units =3,040,875/265 = 11,475 UNITS
Breakeven point in sales = 3,040,875/29.44% = 10,329,059
Ratio of variable cost to sales =9,525,000/13,500,000 = 70.55%
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