3. Taylor Manufacturing has total fixed costs of $450,000. A unit of product sel

Question

3. Taylor Manufacturing has total fixed costs of $450,000. A unit of product sells for $15 and variable costs per unit are S a) Prepare a contribution margin income statement showing predicted net income (loss) if Portal sells 100,000 units for the year ended December 31 Make sure your contribution margin income statement is complete and in good form and includes sales, variable costs, contribution margin, fixed statement should include a net loss. (2 points) b) At a minimum, how many units must Portal sell in order not to incur a loss? (1 point)

Explanation / Answer

CONTRIBUTION MARGIN INCOME STATEMENT Sales revenue (100,000 units @ $15) 1,500,000 Less: Variable cost (100,000 units @ 11) 1,100,000 Contribution margin 400,000 Less: Fixed cost 450,000 Net Loss -50,000 Break even point in units: Fixed cost/ Contribution per unit $450,000 /$ 4 = 112,500 units To incur no loss, the firm must sell 112,500 units Note: Contribution margin per unit = Selling price per unit - variable cost per unt (i.e. 15-11= $4 per unit)

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