Q8SE - Horngren'S Financial And Managerial Accounting

Question

Question: Computing contribution margin, units and required sales to break even, and units to achieve target profit 

Compute the missing amounts for the following table. 

                                                                                    A                  B              C             Sales price per unit                                               \( 200          \) 4,000     $ 5,220 Variable costs per unit                                             80               1,000        2,088 Total fixed costs                                                    73,200          660,000   3,758,400 Target profit                                                          266,760       3,000,000  3,132,000 Calculate:                              

Contribution margin per unit                                 

Contribution margin ratio                                 

Required units to break even                                 

Required sales dollars to break even   

 Required units to achieve target profit

Step-by-Step Solution

Answer

Answer

 

 $$\begin{gathered} \mathbf{1}\mathbf{.}\mathbf{ }\mathbf{A}\mathbf{=}\mathbf{\$}\mathbf{120}\mathbf{,}\mathbf{B}\mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{000}\mathbf{,}\mathbf{C}\mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{132} \\ \mathbf{2}\mathbf{.}\mathbf{A}\mathbf{=}\mathbf{60}\mathbf{\%}\mathbf{,}\mathbf{B}\mathbf{=}\mathbf{75}\mathbf{\%}\mathbf{,}\mathbf{C}\mathbf{=}\mathbf{60}\mathbf{\%} \\ \mathbf{3}\mathbf{.}\mathbf{ }\mathbf{A}\mathbf{=}\mathbf{610}\mathbf{,}\mathbf{B}\mathbf{=}\mathbf{220}\mathbf{,}\mathbf{C}\mathbf{=}\mathbf{1}\mathbf{,}\mathbf{200} \\ \mathbf{4}\mathbf{.}\mathbf{A}\mathbf{=}\mathbf{\$}\mathbf{122}\mathbf{,}\mathbf{000}\mathbf{,}\mathbf{B}\mathbf{=}\mathbf{\$}\mathbf{880}\mathbf{,}\mathbf{000}\mathbf{,}\mathbf{C}\mathbf{=}\mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{264}\mathbf{,}\mathbf{000} \\ \mathbf{5}\mathbf{.}\mathbf{A}\mathbf{=}\mathbf{2}\mathbf{,}\mathbf{833}\mathbf{,}\mathbf{B}\mathbf{=}\mathbf{1}\mathbf{,}\mathbf{220}\mathbf{,}\mathbf{C}\mathbf{=}\mathbf{2}\mathbf{,}\mathbf{200} \end{gathered}$$

Step 1: Calculation of contribution margin per unit

	A	B	C
Sales price per unit	$200	$4,000	$5,220
Less: Variable cost per unit	$80	$1,000	$2,088
Contribution per unit	$120	$3,000	$3,132

Step 2: Calculation of contribution margin ratio

	A	B	C
Sales price per unit	$200	$4,000	$5,220
Less: Variable cost per unit	$80	$1,000	$2,088
Contribution per unit	$120	$3,000	$3,132
Contribution margin ratio = Contribution margin/ net sales revenue	$120/$200 =60%	$3,000/$4,000 =75%	$3,132/$5,220 =60%

Step 3: Calculation of required units to breakeven

	A	B	C
Fixed costs	73,200	660,000	3,758,400
Contribution per unit	$120	$3,000	$3,132
Required sales in units = Fixed costs/ Contribution margin per unit	610	220	1,200

Step 4: Calculation of required sales dollars to breakeven

	A	B	C
Fixed costs	73,200	660,000	3,758,400
Contribution margin ratio = Contribution margin/ net sales revenue	$120/$200 =60%	$3,000/$4,000 =75%	$3,132/$5,220 =60%
Required sales in dollars = Fixed costs/ Contribution margin ratio	$122,000	$880,000	$6,264,000

Step 5: Calculation of required units to achieve target profit