Exercise 18-12 In 2013, Manhoff Company had a break-even point of $314,400 based

Question

Exercise 18-12 In 2013, Manhoff Company had a break-even point of $314,400 based on a selling price of $6 per unit and fixed costs of $88,032. In 2014, the selling price and the variable cost per unit did not change, but the break-even point increased to $396,543. Compute the variable cost per unit and the contribution margin ratio for 2013. (Round Variable cost per unit to 2 decimal places, e.g. $2.25 and Contribution margin ratio to 0 decimal places, e.g. 20%.) Variable cost per unit $ Contribution margin ratio % Compute the increase in fixed costs for 2014. (Round answer to 0 decimal places, e.g. 1,225.) Increase in fixed cost $

Explanation / Answer

For 2013

Break even units = Break even sales/ Sales price = $314,400/$6 = 52,400 units

Contribution margin = Fixed cost/Break even units = $88,032/52,400 = $1.68

Variable Cost = Sales preice per unit - Contribution margin = $6 - $1.68 = $4.32

For 2014

Sales = $6, Variable Cost = $4.32, Contribution margin = $1.68

Break even units = break even sales/selling price = $396,543/$6 = 66,091 units

Fixed Cost = Break even units*Contribution margin = 66,091*$1.68 = $111,032

Increase in Fixed costs = $111,032 - $88,032 = $23,000

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