Exercise 18-12 In 2016, Manhoff Company had a break-even point of $309,000 based

Question

Exercise 18-12 In 2016, Manhoff Company had a break-even point of $309,000 based on a selling price of $5 per unit and fixed costs of $126,000. In 2017, the selling price and the variable costs per unit did not change, but the break-even point increased to $453,000 Compute the variable costs per unit and the contribution margin ratio for 2016. (Round Variable cost per unit to 2 decimal places, e.g. 2.25 and Contribution margin ratio to 0 decimal places, e.g. 25.) Variable costs per unit Contribution margin ratio Compute the increase in fixed costs for 2017. (Round answer to 0 decimal places, e.g. 1,225.) Increase in fixed cost Click if you would like to Show Work for this question: Open Show Work Question Attempts: o of 15 usedSAVE FOR LATER SUBMIT ANSWER SUBMIT ANSWER

Explanation / Answer

Answer 1 At break even point , Contribution Margin = Fixed Expenses Contribution Margin = Sales - Variable cost Hence, Variable cost = Sales - Contribution Margin = $309000 - $126000 = $1,83,000 Variable cost per unit = $183000 / ($309000/$5) = $2.96 per unit Contribution Margin ratio = Contribution Margin / sales = $126000 / $309000 = 41% Answer 2 No.of units sold at break even point = New break even point in dollars / Selling price per unit = $453000 / $5 = 90600 At break even point , Contribution Margin = Fixed Expenses Hence, new Fixed expenses = Sales - Variable cost = $453000 - (90600 * $2.96) = $1,84,718 Increase in Fixed expenses = $184718 - $126000 = $58,718

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