GADGET Inc, income statement as follows: What is the unit contribution margin? W
ID: 2486949 • Letter: G
Question
GADGET Inc, income statement as follows: What is the unit contribution margin? What is the contribution margin ratio? What is GADGET's breakdown point? What is the impact on profit if sales increase by 2,000 units? Using the contribution margin ratio, what is the impact on profit if sales increase by $150,000? GADGET is considering an investment in new equipment which will raise fixed costs to S500.000 and reduce variable costs by 5%. At what level of sales docs the new investment make sense? The point where we are indifferent between the two options.Explanation / Answer
3)
Unit Contribution Margin = Contribution Margin/No of Units Sold
Unit Contribution Margin = 426000/10000
Unit Contribution Margin = $ 42.60
4)
Contribution Margin ratio = Contribution Margin/sale
Contribution Margin ratio = 426000/1420000
Contribution Margin ratio = 30%
5)
Break Even Point = Fixed Cost/Unit Contribution Margin
Break Even Point = 340800/42.60
Break Even Point = 8000 Units
6)
Impact on Profit if sale increase by 2000 unit = No of Unit Increased * Contribution Margin per unit
Impact on Profit if sale increase by 2000 unit = 2000*42.60
Impact on Profit if sale increase by 2000 unit = $ 85200
Answer
if sale increase by 2000 unit , Profit increase by $ 85200
7)
Impact on Profit if sale increase by $150000 = Sales Increase * Contribution Margin ratio
Impact on Profit if sale increase by $150000= 150000*30%
Impact on Profit if sale increase by$150000 = $ 45000
Answer
if sale increase by $150000 , Profit increase by $ 45000
8)
Increase in Fixed Cost = 500000
Decrease in variable cost = 5%
Current Variable Cost per Unit = 994000/10000 = 99.40
Decrease in variable cost per unit = 99.40*5% = 4.97
Indifference Point = Increase in Fixed Cost/Decrease in variable cost per unit
Indifference Point = 500000/4.97
Indifference Point = 100603.62 Unit
Sales (10000 Units) 1420000 Less: Variable Cost 994000 Contribution Margin 426000 Less: Fixed cost 340800 Net Income 85200Related Questions
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