Use the contribution margin ratio to calculate break even point sales. a. Calcul

Question

Use the contribution margin ratio to calculate break even point sales.

a. Calculate the break-even point for 2014. Round to the next highest whole unit.
square yards

b. How many square yards of each product are expected to be sold at the break-even point?

c. If the company wants to earn pre-tax profit of $800,000, how many square yards of each type of flooring would it need to sell? Round your computations and final answers to the next highest whole unit.

How much total revenue would be required?
$

d. If the company wants to earn an after-tax profit of $680,000, determine the revenue needed using the contribution margin percentage approach. Round CM% to the nearest tenth of a percent and amounts to the nearest whole dollar.
$

e. If the company achieves the revenue determined in part (d), what is the margin of safety in dollars.
$

If the company achieves the revenue determined in part (d), what is the margin of safety as a percentage? In your calculation, round the contribution margin ratio to two decimal places. Round your final calculation to the next whole dollar. Round the percentage to two decimal places.
%

Explanation / Answer

Contribution Oak Hickory Cherry Sale Price                  32.80         16.00                  50.00 Less - Direct Material                  10.40           6.50                  17.60 Less - Direct Labour                     3.60           0.80                  12.80 Less - Production OH                     2.00           0.30                     3.50 Less - Selling Expenses                     1.00           0.50                     4.00 Less - Administrative Expenses                     0.40           0.20                     0.60 Contribution per Sq Yard                  15.40           7.70                  11.50 Total Fixed Cost 1 Fixed Overhead              760,000 2 Fixed Selling Expense              240,000 3 Fixed Administrative Expense              200,000 Total Fixed Cost          1,200,000 Sales Mix Ratio 9 : 72 : 6 Sales Mix weighted Average Contribution per Sq. Yard                                                                         8.76 a. Break Even Point for 2014 (Rounded Up) - Sq Yard        137,008.00 (Fixed Expenses divided by Average contribution) b. Break Even Sale of Oak - Sq Yard          14,173.00 Break Even Sale of Hickory - Sq Yard        113,386.00 Break Even Sale of Cherry - Sq Yard            9,449.00 Total - Sq Yard        137,008.00 c. Profit Required to earn              800,000 Total Fixed Cost          1,200,000 Total Contribution required          2,000,000 Sale required for desired Profit - Sq Yard        228,347.00 (Total contribution required divided by Average contribution) Required Sale of Oak - Sq Yard          23,622.00 Required Sale of Hickory - Sq Yard        188,977.00 Required Sale of Cherry - Sq Yard          15,748.00 Total - Sq Yard        228,347.00

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