PA6-1 Calculating Contribution Margin, Contribution Margin Ratio, Break-Even Poi
ID: 2541234 • Letter: P
Question
PA6-1 Calculating Contribution Margin, Contribution Margin Ratio, Break-Even Point [LO 6-1, 6-2 Henmosa, Inc., produces one model of mountain bke. Partial infonmation for the company follows 970 Number of bikes produced and sold Total cost 850 arable costs Fxed costs per yea 118.50 Total costs Cost per unit nable cost per unit Foxed cost per unit Total cost per unit S 524.75 Required: 1. Complete the table. (Round your "Cost per Unit" answers to 2 decimal places.) of bikes and sold 490 Units 850 Units 970 Units Total costs Verisble costs 5 118.580 Foed costs per year Total costs 3 118.560 Coat par unt Variable coat per unit Fooed coat per unit Total cost per unit 0.00 S 524.75 S 0.00 2. Calculate Hermosas contribution margin ratio and its total contri or margin a e sales level indicated in the table assuming the comp any se s each bike r S750 Round your percentage answers to 2 decr al places (i e 1234 should be entered as 12.34% 490 Units 850 Units 970 Units Contribution Margin Ratio Total Contribuion Margin 4. Calculate Hermosa's break-even point in units and sales revenue. (Round your answers to the ncarest whole number.) Break-Even Units Bikes Break-Even Sales RevenueExplanation / Answer
Hemosa Inc
Number of bikes produced and sold
490 units
850 units
970 units
Total costs
Variable costs
$118,580
$205,700
$234,740
fixed costs per year
$240,338
$240,338
$240,338
Total costs
$358,918
$446,038
$475,078
Cost per unit
variable cost per unit
$242
$242
$242
Fixed cost per unit
$490.50
$282.75
$247.80
Total cost per unit
$732.50
$524.75
$489.80
Variable cost per unit is calculated as follows,
$118,580/490 units = $242
Since variable cost per unit remains constant at any level of activity, the variable cost per unit for 490, 850 and 970 units remains at $242.
Fixed cost per annum is calculated as follows,
Total cost = variable cost + fixed cost
Total cost per unit at 850 units= $524.75
Less: variable cost per unit $242
Hence fixed cost per unit = $282.75
Since, fixed cost per unit is not constant, the same cannot be applied for all levels of activity.
Hence, we find the total fixed cost per annum as $282.75 x 850 units = $240,338 (rounded off to nearest whole dollar). The fixed cost per annum remains constant at any level of activity.
490 units
850 units
970 units
unit Selling price
$750
$750
$740
unit variable cost
$242
$242
$242
Unit contribution margin
$508
$508
$508
Contribution margin ratio = contribution margin/sales price
508/750
508/750
508/750
Contribution margin ratio
67.73%
67.73%
67.73%
Total contribution margin
$248,920
$431,800
$492,760
Break-even point in units = fixed cost/contribution margin
= $240,338/$508 = 473 units (rounded off)
Break-even point in sales dollars = fixed cost/contribution margin ratio
= $240,338/67.73% = $354,830 (rounded off)
Break even units
473
break even sales revenue
$354,830
Number of bikes produced and sold
490 units
850 units
970 units
Total costs
Variable costs
$118,580
$205,700
$234,740
fixed costs per year
$240,338
$240,338
$240,338
Total costs
$358,918
$446,038
$475,078
Cost per unit
variable cost per unit
$242
$242
$242
Fixed cost per unit
$490.50
$282.75
$247.80
Total cost per unit
$732.50
$524.75
$489.80
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