Price, Variable Cost per Unit, Contribution Margin, Contribution Margin Ratio, F

Question

Price, Variable Cost per Unit, Contribution Margin, Contribution Margin Ratio, Fixed Expense For each of the following independent situations, calculate the amount(s) required. Required: 1. At the break-even point, Jefferson Company sells 105,000 units and has fixed cost of $346,700. The variable cost per unit is $0.20. What price does Jefferson charge per unit? Note: Round to the nearest cent. $ 2. Sooner Industries charges a price of $121 and has fixed cost of $413,500. Next year, Sooner expects to sell 14,700 units and make operating income of $179,000. What is the variable cost per unit? What is the contribution margin ratio? Note: Round your variable cost per unit answer to the nearest cent. Enter the contribution margin ratio as a percentage, rounded to two decimal places. Variable cost per unit $ Contribution margin ratio % 3. Last year, Jasper Company earned operating income of $22,300 with a contribution margin ratio of 0.25. Actual revenue was $223,000. Calculate the total fixed cost. Note: Round your answer to the nearest dollar, if required. $ 4. Laramie Company has variable cost ratio of 0.25. The fixed cost is $100,000 and 20,500 units are sold at break-even. What is the price? What is the variable cost per unit? The contribution margin per unit? Note: Round answers to the nearest cent. Price $ Variable cost per unit $ Contribution margin per unit $

Explanation / Answer

Jefferson Company

Break-even sales = 105,000 units

Fixed cost = $346,700

Variable cost per unit = $0.20

Let the sales price be S

Break-even sales in units = fixed cost/contribution margin per unit

Contribution margin per unit = S -$0.20

105,000 = $346,700/(S-$0.20)

105,000 (S-$0.20) = $346,700

105,000S - 21,000 = 346,700

105,000S = 346,700 + 21,000 = 367,700

S = $367,700/105,000 = $3.50

Hence, the sales price per unit = $3.50

Sales price = $121

Fixed cost = $413,500

Next year sales = 14,700 units

Operating income = $179,000

Variable cost per unit =?

Say, variable cost =V

Target sales in units = (Fixed cost + target income)/contribution margin

Contribution margin = sales price – variable cost

                        = 121 -V

14,700 = (413,500 + 179,000)/(121-V)

14,700 (121 – V) = $592,500

$1,778,700 – 14,700V = $592,500

14,700V = $1,186,200

V = 1,186,200/14,700 = $80.70

Hence, variable cost, V = $80.70

Contribution margin ratio = (Contribution margin/sales price) x 100

Contribution margin = 121 - 80.70 = $40.30

Contribution margin ratio = (40.30/121) x 100

Contribution margin ratio = 33.30%

Operating income = $22,300

Contribution margin ratio = 25%

Actual sales revenue = $223,000

Fixed cost =?

Contribution margin = fixed cost + operating income

Contribution margin = 25% of revenue

                        = $223,000 x 25% =$55,750

Hence, fixed cost = contribution margin – operating income

                        = $55,750 - $22,300 = $33,450

            Fixed cost = $33,450

Variable cost ratio = 25%

Fixed cost = $100,000

Break-even Sales units = 20,500

Sales price =?

Break-even sales units = fixed cost/contribution margin per unit

Contribution margin = sales price – variable cost per unit

Variable cost ratio = 25%

Hence, contribution margin ratio = 75%

Break-even sales in dollars = fixed cost/contribution margin ratio

                        = 100,000/75% =$133,333

Break-even Sales in units = 20,500

Sales price = $133,333/20,500 = $6.50

Variable cost = 25% of sales price

                        = 6.50 x 25% = $1.62

Contribution margin = 75% of sales price
                                    = $6.50 x 75% = $4.88

Sales price = $6.50

Variable cost per unit = $1.62

Contribution margin = $4.88

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