1 Calculation Amount 2 1. Breakeven point (in units) 30,000 3 2. Breakeven point

Question

1 Calculation Amount 2 1. Breakeven point (in units) 30,000 3 2. Breakeven point (in dollars) 32.700,000 · 4 3. Units needed to earn desired profit 5 4. Sales dollars needed for desired profit Table 2: Change 5. Impact on the contribution margin if fixed costs increase by $40,000 6. Impact on the contribution margin ratio if per unit sales and variable costs both decrease by $10 7. Impact on total variable costs if the desired pretax profit increases by $50,000 8. Impact on breakeven in units if tax rate decreases to 30 percent Impact

Explanation / Answer

Table 1 Answer 4 Units needed to earn desired profit = (Fixed cost + desired pretax profit)/(Sales price - Variable cost) Units needed to earn desired profit = ($810000+$135000)/($90 - $63) = 35000 units Answer 5 Sales dollar needed for desired profit = 35000 units * $90 = $31,50,000 Table 2 Answer 5 Contribution margin = Sales - Variable cost As contribution margin calculation doesn't involve fixed cost, hence decrease in fixed cost won't affect contribution margin. Answer 6 Contribution Margin ratio = (Sales - Variable cost)/ sales Present Contribution margin ratio = ($90-$63)/$90 = 30% Revised Contribution Margin ratio = ($80 - $53)/$80 = 33.75% There will be increase in contribution margin ratio from 30% to 33.75% if both sales and variable cost per unit decrease by $10. Answer 7 Variable cost decreases if the desired pretax profit increases by $50000. Answer 8 Breakeven in units decreases if tax rate decreases to 30%

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