(a)
Concept introduction:
Contribution Margin:
The margin of profit which is computed after considering the variable cost only and not the fixed costis known as contribution. In other words, it means the contribution made by selling the product after covering its variable cost to the company.
The missing figure in the table.
Answer to Problem 5E
The missing figure in the table is as follows:
Particulars | |||
Number of canoes sold | |||
Total Costs: | |||
Variable Cost | |||
Fixed Cost | |||
Cost per unit | |||
Variable Cost per unit | |||
Fixed Cost per unit | |||
Explanation of Solution
The total cost is an addition of variable cost and fixed cost. Variable cost varies with the quantity volume but the variable cost per unit remains same. On the other hand, the fixed costs remain same but the per unit fixed cost decreases with the increase in quantity level.
As given in the question, the variable cost of
(b)
Concept introduction:
Contribution Margin:
The margin of profit which is computed after considering the variable cost only and not the fixed costis known as contribution. In other words, it means the contribution made by selling the product after covering its variable cost to the company.
The contribution margin per unit and margin ratio if the sales price is
Answer to Problem 5E
The contribution margin per unit, if the sales price is
Explanation of Solution
Contribution Margin Income Statement
Particulars | Amount | |
Sales Price |
||
Variable Cost per Canoe |
||
Contribution Margin |
||
Contribution Margin Ratio |
(c)
Concept introduction:
Contribution Margin:
The margin of profit which is computed after considering the variable cost only and not the fixed costis known as contribution. In other words, it means the contribution made by selling the product after covering its variable cost to the company.
The contribution margin income statement if the number of canoes to be sold is
Answer to Problem 5E
The contribution margin is
Explanation of Solution
Contribution Margin Income Statement
Particulars | Amount | |
Sales Price |
||
Variable Cost per Canoe |
||
Contribution Margin |
||
No. of canoes sold | ||
Contribution Margin Income |
(d)
Concept introduction:
Contribution Margin:
The margin of profit which is computed after considering the variable cost only and not the fixed costis known as contribution. In other words, it means the contribution made by selling the product after covering its variable cost to the company.
The breakeven point in units and in sales amount
Answer to Problem 5E
The breakeven point in units is
Explanation of Solution
Contribution Margin Income Statement
Particulars | Amount | |
Sales Price |
||
Variable Cost per Canoe |
||
Contribution Margin |
The break-even point in units is calculated as:
Thebreak-even point in sales is calculated as:
(e)
Concept introduction:
Contribution Margin:
The margin of profit which is computed after considering the variable cost only and not the fixed costis known as contribution. In other words, it means the contribution made by selling the product after covering its variable cost to the company.
The number of canoes to be sold to achieve target profit of
Answer to Problem 5E
The breakeven point in units is
Explanation of Solution
Contribution Margin Income Statement
Particulars | Amount | |
Sales Price |
||
Variable Cost per Canoe |
||
Contribution Margin |
The number units to be sold for achieving the target profit are calculated as:
Thesales for achieving the target profit are calculated as:
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Chapter 6 Solutions
Managerial Accounting
- Faldo Company produces a single product. The projected income statement for the coming year, based on sales of 200,000 units, is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. Suppose that 30,000 units are sold above the break-even point. What is the profit? 2. Compute the contribution margin ratio and the break-even point in dollars. Suppose that revenues are 200,000 greater than expected. What would the total profit be? 3. Compute the margin of safety in sales revenue. 4. Compute the operating leverage. Compute the new profit level if sales are 20 percent higher than expected. 5. How many units must be sold to earn a profit equal to 10 percent of sales? 6. Assume the income tax rate is 40 percent. How many units must be sold to earn an after-tax profit of 180,000?arrow_forwardCharlevoix Cases makes mobile phone cases. The company has collected the following price and cost characteristics: Sales price $ 12.00 per case Variable costs 5.50 per case Fixed costs 403,000 per year Assume that the company plans to sell 77,000 units annually. Consider requirements (b), (c), and (d) independently of each other. Required: What will be the operating profit? What is the impact on operating profit if the sales price decreases by 20 percent? Increases by 10 percent? Note: Do not round intermediate calculations. What is the impact on operating profit if variable costs per unit decrease by 20 percent? Increase by 10 percent? Note: Do not round intermediate calculations. Suppose that fixed costs for the year are 20 percent lower than projected and variable costs per unit are 20 percent higher than projected. What impact will these cost changes have on operating profit for the year? Will profit go up? Down? By how much? Note: Do not round intermediate…arrow_forwardHead-First Company now sells both bicycle helmets and motorcycle helmets. Next year, Head- First expects to produce total revenue of $585,000 and incur total variable cost of $372,000. Total fixed cost is expected to be $60,000. Required: 1. Calculate the break-even point in sales dollars for Head-First. Round the contribution margin ratio to four decimal places and sales to the nearest dollar. 2. Check your answer by preparing a contribution margin income statement.arrow_forward
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- McKnight Company sells flags with team logos. McKnight has fixed costs of $180,000 per year plus variable costs of $4.00 per flag. Each flag sells for $10.00. Read the requirements LOADING... . Requirement 1. Use the equation approach to compute the number of flags McKnight must sell each year to break even. First, select the formula to compute the required sales in units to break even. - - = Target profit Requirements 1. Use the equation approach to compute the number of flags McKnight must sell each year to break even. 2. Use the contribution margin ratio approach to compute the dollar sales McKnight needs to earn $18,000 in operating income for the year. (Round the contribution margin ratio to two decimal places.) 3. Prepare McKnight's contribution margin income statement for the year ended December 31, for sales of 23,000 flags. (Round your final answers up to the next whole number.) 4. The company…arrow_forwardCalculate the number of helmets Head-First must sell to earn operating income of $81,900. _____________helmets Refer to the list below for the exact wording of text items within your income statement. Amount Descriptions Operating income Operating loss Sales Total contribution margin Total fixed cost Total variable cost Units to Earn Target Income Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,500 (includes fixed factory overhead and fixed selling and administrative expense). Required: 1. Calculate the number of helmets Head-First must sell to earn operating income of $81,900. 2. Check your answer by preparing a contribution margin income statement based on the number of units calculatedarrow_forwardOlongapo Sports Corporation distributes two premium golf balls—the Flight Dynamic and the Sure Shot. Monthly sales and the contribution margin ratios for the two products follow: picture1 Fixed expenses total $183,750 per month. Required:1. Prepare a contribution format income statement for the company as a whole. Carry computations to one decimal place.2. Compute the break-even point for the company based on the current sales mix.3. If sales increase by $100,000 a month, by how much would you expect net operating incometo increase? What are your assumptions?arrow_forward
- [Question 2] Whittier Company plans to sell 1,000 mowers at $400 each in the coming year.Total variable expense per unit is $325. Total fixed expense is $45,000.Required:1. Calculate the sales revenue and units that Whittier Company must make to breakeven. 2. Check your answer by preparing a contribution margin income statementbased on the break-even point calculated. 3. Find the new break units and sales even under the following conditions i. sales price increase by 25 % ii. variable expenses reduced by $25 iii. Fixed cost has increased by 20 %arrow_forwardsolve the fiven question: Raveen Products sells camping equipment. One of the company’s products, a camp lantern, sells for $90 per unit. Variable expenses are $63 per lantern, and fixed expenses associated with the lantern total $135,000 per month. Required: Compute the company’s break-even point in number of lanterns and in total sales dollars. Compute the company’s Margin of Safety in sales dollar and in percentage. At present, the company is selling 8,000 lanterns per month. The sales manager is convinced that a 10% reduction in the selling price will result in a 25% increase in the number of lanterns sold each month. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes. Show both total and per unit data on your statements. Refer to the data in (3) above. How many lanterns would have to be sold at the new selling price to yield a minimum net operating income of $72,000 per month?…arrow_forwardRed Hawk Enterprises sells handmade clocks. Its variable cost per clock is $6.50, and each clock sells for $16.00. Required: Calculate Red Hawk's unit contribution margin. Calculate Red Hawk's contribution margin ratio. Suppose Red Hawk sells 2,050 clocks this year. Calculate the total contribution margin. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Suppose Red Hawk sells 2,050 clocks this year. Calculate the total contribution margin. Note: Round your answers to 2 decimal places.arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning