Klamath Company produces a single product. The projected income statement for th

Question

Klamath Company produces a single product. The projected income statement for the coming year is as follows:

Required:

1. Compute the unit contribution margin and the units that must be sold to break even.

2. Suppose 10,000 units are sold above breakeven. What is the operating income?
$

3. Compute the contribution margin ratio. Use the contribution margin ratio to compute the break-even point in sales revenue.

Suppose that revenues are $200,000 more than expected for the coming year. What would the total operating income be?

Sales (80,800 units @ $30.00) $2,424,000 Total variable cost 1,599,840 Contribution margin $ 824,160 Total fixed cost 890,460 Operating income $ (66,300)

Explanation / Answer

1 Unit contribution margin =30-(1599840/80800)= 10.2 Break-even units =890460/10.2= 87300 2 Operating income = (90800*10.2)-890460= 35700 3 Contribution margin ratio =10.2/30= 34% Break-even sales revenue =890460/34%= 2619000 Total operating income = (2424000+200000)*34%-890460= 1700

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