Q11SE - Horngren'S Financial And Managerial Accounting

Question

Question: Use the following information to complete Short Exercises S20-10 through S20-15. 

Funday Park competes with Cool World by providing a variety of rides. Funday Park sells tickets at \(70 per person as a one-day entrance fee. Variable costs are \)42 per person, and fixed costs are $170,800 per month. 

 

Compute Funday Park’s contribution margin ratio. Carry your computation to two decimal places. Use the contribution margin ratio approach to determine the sales revenue Funday Park needs to break even

 

Step-by-Step Solution

Answer

Answer

 

The sales in dollars is $427,000.

Step 1: Calculation of Contribution margin ratio

$$\begin{gathered} \mathbf{Contributionmargin}\mathbf{=}\mathbf{Salesprice}\mathbf{-}\mathbf{-}\mathbf{Variablecost} \\ \mathbf{=}\mathbf{\$}\mathbf{70}\mathbf{-}\mathbf{\$}\mathbf{42} \\ \mathbf{=}\mathbf{\$}\mathbf{28} \\ \mathbf{Contributionmarginratio}\mathbf{=}\frac{\mathbf{Contributionmarginperunit}}{\mathbf{Salesrevenue}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{28}}{\mathbf{\$}\mathbf{70}} \\ \mathbf{=}\mathbf{40}\mathbf{\%} \end{gathered}$$

Step 2: Calculation of breakeven point in sales dollars

$$\begin{gathered} \mathbf{Salesrequiredindollars}\mathbf{=}\frac{\mathbf{Fixedcost}\mathbf{+}\mathbf{Targetprofit}}{\mathbf{Contributionmarginratio}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{170}\mathbf{,}\mathbf{800}\mathbf{+}\mathbf{\$}\mathbf{0}}{\mathbf{40}\mathbf{\%}} \\ \mathbf{=}\mathbf{\$}\mathbf{427}\mathbf{,}\mathbf{000} \end{gathered}$$