Rush Company developed the following information for its product: Per Unit Sales
ID: 2520912 • Letter: R
Question
Rush Company developed the following information for its product: Per Unit Sales price $90 Variable cost $54 Contribution margin $36 Total fixed costs $1,080,000 Instructions: Answer the following independent questions and show computations using the contribution margin technique to support your answers. (Partial credit will be awarded if you show your work.)
How many units must be sold to break even?
What is the total sales that must be generated for the company to earn a profit of $60,000?
If the company is presently selling 45,000 units, but plans to spend an additional $108,000 on an advertising program, how many additional units must the company sell to earn the same net income it is now making?
Using the original data in the problem, compute a new break-even point in units if the unit sales price is increased 20%, unit variable cost is increased by 10%, and total fixed costs are increased by $135,000.
Explanation / Answer
Requirement Break even points in units = Total Fixed Costs / Contribution margin per unit =1080000/36 = 30000 Units Requirement Total sales company would generate to earn profit of 60000 Contribution = Total fixed cost + Profit = 1080000+60000 = 1140000 Contribution per unit given = 36 Total sales in unit to earn a profit of 60000 = Total contribution / contribution per unit = 1140000/36 = 31666.67 Total sales in dollars = Total sales in unit * selling price per unit = 31666.67*90 = 2850000 Requirement With 45000 units company is making a profit of = Total contribution - Total fixed cost =45000*36 -1080000 = 540000 With increase in $108000 in advertsing, its fixed cost will be =1080000+108000 = 1188000 And now compnay wants to earn same net iincome of 540000 with increase in advertising So, revised contribution = 1188000+540000 = 1728000 Contribution per unit = 36 Total sales in units with revised total contribution = 1728000/36 = 48000 3000 additional units (48000-45000) Company should sell to earn the same profit with sale of 45000 units Requirement New break even sales in units after changing the original data Original Revised Sales 90 108 =90*120% Variabel cost 54 59.4 =54*110% Contribution margin 36 48.6 Fixed cost 1080000 1215000 =1080000+135000 Net Income Break even points in units = Total Fixed Costs / Contribution margin per unit =1215000/48.6 = 25000 Units We appreciate rating of our answers. It really encourages us to improve/maintain our quality of answers. Thank You.
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