Paragraph Styles Chapter 5 Homework Problem K Surething CD Company reports sales
ID: 2508585 • Letter: P
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Paragraph Styles Chapter 5 Homework Problem K Surething CD Company reports sales ofi$720 000, variable costs of $432,000, and fixed costs of $108,000. If the company spends $72.000 on a sales promotion campaign, it estimates that sales will be increased by $270.000 Determine whether the sales promotion campaign should be undertaken Provide calculations Alternate problem C Jefferson Company has a plant capacity of 100,000 units, at which level variable costs are $720,000 Fixed costs are expected to be $432.000. Each unit of product sells for $12. 1. Calculate the company s contribution margin ratio and contribution margin per unit 2. Determine the company s break-even point in sales dollars and units 3. At what level of sales units and sales dollars would the company earn net income of $144,000? If the selling price were raised to S14 40 per unit, at what level of sales units would the company earn $144.000? 4.Explanation / Answer
Problem k: Contribution: Sales - variable cost = 720000-432000 = 288,000 CM ratio: Contribution / sales *100 = 288000 /720,000 *100 = 40% Increase sales: $270,000 Increased Contribution: $270000*40% = $ 108,000 Additional fixed cost: $72,000 Increased profits: Increased Contribution-Additional fixed cost 108,000 - 72,000 =36,000 Yes, it should be undertaken asa profits icnrease by 36000 Problem C: Variable cost per unit: 720,000 /100,000 = $ 7.20 Selling price per unit: 12 Contribution margin per unit: Sselling price - variable cost = 12.00 -7.20 = 4.80 CM ratio = Contribution margin perr unit / Selling price *100 = 4.80 / 1 2 *100 = 40% Break even point in units: Fixed cost / CM per unit 432,000 /4.80 = 90,000 units Break even in $ : fixed cost / CM ratio 432000 /40% = $1080,000 Desire incoome: $144,000 Desired contribution: 144000+432000 = 576,000 Sales in Units: Desired contribution/ CM per unit = 576000 /4.80 = 120,000 units Sales in $ : Desired contribution /CM ratio = 576000/40% =$ 1440,000 Revised Selling pricec:; 14.40 Revised Contribution per unit: 14.40- 7.20 = 7.20 Sales in units: Desired Contribution / Revised CM per unit 576,000 /7.20 = 80,000 units
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