The Lucky Penny costs variable cost to produce, and show your calculations- 2.5

Question

The Lucky Penny costs variable cost to produce, and show your calculations- 2.5 pts each) for the company are $262,500 per year. The average Company is a local coffee producer looking at different options for future growth. Fiwed selling price per pound of coffee is $B.00. The average backage, and sell one pound of coffee is $4.50. Assume there are 365 days in a year a. Calculate the contribution margin per unit. b. Calculate the contribution margin ratio and variable expense ratio. Calculate the total contribution margin for the year if the company sells 250 pounds of coffee per day c. d. Calculate the breakeven point in units (pounds of coffee) for the year e. Calculate the margin of safety in dollars (for the year) if budgeted sales are 250 pounds of coffee f. Calculate the revenue (dollar sales) required to reach a target operating income of $350,00 Page 4 of 7

Explanation / Answer

a)Contribution marigin per unit = selling price - variable cost

=8 - 4.5

= 3.5/ unit

b)Contribution marigin ratio =contribution marigin per unit /sale price per unit

= (3.5÷8) × 100=43.75%

Variable expenses ratio = variable cost ÷ selling price

= (4.5÷8)×100=56.25%

c)contribution marigin for the year if sslss 250 pounds/day

Total no of sale per annum =365×250=91250 pounds p.a

Total sale value =91250×8=730000

Total variable cost. =91250×4.5=410625

Total contribution =730000 - 410625=319375

d)Brea even point = fixed cost÷ contribution per unit

= 262500÷3.5

= 75000 units

e)Margin of safety = profit ÷P/V ratio

P/V ratio = contribution ÷sales = 3.5÷8=.0.4375 or 43.75%

Profit = contribution - fixed cost =(3.5×250×365) - 262500

=56875

Margin of safety($)

= 56875÷0.4375= $130000

f) Required sales in $ = (fixed cost+target income)÷contribution marigin ratio

=(262500+350000)÷43.75%

=612500÷43.75%

=$1400000

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