Exercise
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Exercise 6-3 Computing and Using the CM Ratio 1. What is the company’s contribution margin ( CM ) ratio? Answer: CM = $ 200,000 - $ 120,000 = $80,000 CM Ratio = Unit Contribution Margin Selling Price =
$80,000 $200,000
= 40% 2. Estimate the change in the company’s net income if it were to increase its total sales by $1000 Answer: Total Total sales ( 51,000) (-) Variable Expenses Contribution Margin (-) Fixed Expenses Net Operating Income
$204,000 $122,400 $81,600 $65,000 $16,000
Per unit 4.00 2.40 1.60
Exercise 6-4 Changes in Variable cost,Fixed cost,Selling price, and Volume 1. Answer: Sales ( 2, 000) (-) vc expenses Contribution margin (-) fix. Expenses Net operating income
Total per unit $ 180, 000 $ 90 $ 126, 000 $ 63 $ 54, 000 $ 27 $ 30, 000 $ 24, 000
percent of sales 100 % 70 % 30 %
5000 in month total Sales (-) vc expenses Contribution margin (-) fixed expenses Net operating income
9000 in month total per unit
$ 450, 000 $ 315, 000 $ 135, 000 $ 30, 000 $ 105, 000
$ 810, 000 $ 567, 000 $ 243, 000 $ 30, 000 $ 213, 000
2. Answer: Sales (-) variable expenses Contribution margin (-) fixed Expenses Net operating income
Total $ 180, 000 $ 130, 000 $ 50, 000 $ 30, 000 $ 20, 000
per unit $ 90 $ 65 $ 25
Exercise 6-14 Break-even and Target Profit Analysis 1. What are the variable expenses per unit? Answer: Variable per unit : Sales = Variable expenses + Fixed expenses + Profits x = 0.7x + $180,000 + 0 x = $ 600,000 $ 600,000 $ 40 = 15,000 units Sales ( 15, 000 ) (-) vc expenses Contribution margin
Per unit $ 40 $ 28 $ 12
2. Using the equation method:
percent of sales 100% 70% 30%
$ 90 $ 63 $ 27
Answer: a- What is the break-even point in units and sales dollars? i) Sales = vc expenses + fixed expenses + profit 40 Q = 28 Q + $ 180, 000 + $ 0 12 Q = $ 180, 000 Q = 15, 000 unit ii) Sales = vc expenses + fixed expenses + profit x= 0.70x+ $ 180, 000 + $ 0 0.30 x = $ 180, 000 x= $ 600, 000 b- What sales level in units and in sales dollars is required to earn an annual profit of $60,000? i) Unit sales : Sales = vc expenses + fixed expenses + profit $ 40 Q = $ 28 Q + $ 180, 000 + $ 60, 000 $ 12 Q = $ 240, 000 Q= 20, 000 unit ii) Total sales dollar : Sales = variable expenses + fixed expenses + profit x = 0.70x + $ 180, 000 + $ 60, 000 0.30 x = $ 240, 000 x = $ 800, 000 c) Company is able to reduce variable expenses by $ 4per unit : Answer: i) BEP unit sales : Sales = variable expenses + fixed expenses + profit $ 40 Q = $ 24 Q + $ 180, 000 + $ 0 $ 16 Q = $ 180, 000 Q = 11, 250 unit ii) BEP total sales dollar : Sales = variable expenses + fixed expenses + profit x = 0.60x+ $ 180, 000 + $ 0 0.40 x = $ 180, 000 x = $ 450, 000
3. Using contribution margin method Answer: i) BEP unit sales = fixed expenses unit contribution margin = $ 180, 000 $ 16 = 11, 250 ii) BEP total sales dollar = fixed expenses CM ratio = $ 180, 000 0.40 = $ 450, 000
$80,000 $200,000
= 40% 2. Estimate the change in the company’s net income if it were to increase its total sales by $1000 Answer: Total Total sales ( 51,000) (-) Variable Expenses Contribution Margin (-) Fixed Expenses Net Operating Income
$204,000 $122,400 $81,600 $65,000 $16,000
Per unit 4.00 2.40 1.60
Exercise 6-4 Changes in Variable cost,Fixed cost,Selling price, and Volume 1. Answer: Sales ( 2, 000) (-) vc expenses Contribution margin (-) fix. Expenses Net operating income
Total per unit $ 180, 000 $ 90 $ 126, 000 $ 63 $ 54, 000 $ 27 $ 30, 000 $ 24, 000
percent of sales 100 % 70 % 30 %
5000 in month total Sales (-) vc expenses Contribution margin (-) fixed expenses Net operating income
9000 in month total per unit
$ 450, 000 $ 315, 000 $ 135, 000 $ 30, 000 $ 105, 000
$ 810, 000 $ 567, 000 $ 243, 000 $ 30, 000 $ 213, 000
2. Answer: Sales (-) variable expenses Contribution margin (-) fixed Expenses Net operating income
Total $ 180, 000 $ 130, 000 $ 50, 000 $ 30, 000 $ 20, 000
per unit $ 90 $ 65 $ 25
Exercise 6-14 Break-even and Target Profit Analysis 1. What are the variable expenses per unit? Answer: Variable per unit : Sales = Variable expenses + Fixed expenses + Profits x = 0.7x + $180,000 + 0 x = $ 600,000 $ 600,000 $ 40 = 15,000 units Sales ( 15, 000 ) (-) vc expenses Contribution margin
Per unit $ 40 $ 28 $ 12
2. Using the equation method:
percent of sales 100% 70% 30%
$ 90 $ 63 $ 27
Answer: a- What is the break-even point in units and sales dollars? i) Sales = vc expenses + fixed expenses + profit 40 Q = 28 Q + $ 180, 000 + $ 0 12 Q = $ 180, 000 Q = 15, 000 unit ii) Sales = vc expenses + fixed expenses + profit x= 0.70x+ $ 180, 000 + $ 0 0.30 x = $ 180, 000 x= $ 600, 000 b- What sales level in units and in sales dollars is required to earn an annual profit of $60,000? i) Unit sales : Sales = vc expenses + fixed expenses + profit $ 40 Q = $ 28 Q + $ 180, 000 + $ 60, 000 $ 12 Q = $ 240, 000 Q= 20, 000 unit ii) Total sales dollar : Sales = variable expenses + fixed expenses + profit x = 0.70x + $ 180, 000 + $ 60, 000 0.30 x = $ 240, 000 x = $ 800, 000 c) Company is able to reduce variable expenses by $ 4per unit : Answer: i) BEP unit sales : Sales = variable expenses + fixed expenses + profit $ 40 Q = $ 24 Q + $ 180, 000 + $ 0 $ 16 Q = $ 180, 000 Q = 11, 250 unit ii) BEP total sales dollar : Sales = variable expenses + fixed expenses + profit x = 0.60x+ $ 180, 000 + $ 0 0.40 x = $ 180, 000 x = $ 450, 000
3. Using contribution margin method Answer: i) BEP unit sales = fixed expenses unit contribution margin = $ 180, 000 $ 16 = 11, 250 ii) BEP total sales dollar = fixed expenses CM ratio = $ 180, 000 0.40 = $ 450, 000
