In: Accounting

E6-5 Calculating Contribution Margin and Contribution Margin Ratio; Identifying Break-Even Point, Target Profit [LO 6-1, 6-2]...

E6-5 Calculating Contribution Margin and Contribution Margin Ratio; Identifying Break-Even Point, Target Profit [LO 6-1, 6-2]

Sandy Bank, Inc., makes one model of wooden canoe. Partial information for it follows:

Required:
1.
Complete the following table. (Round your "Cost per Unit" answers to 2 decimal places.)

 Number of Canoes Sold and Purchased 480 570 780 Total Cost Variable Costs $76,320 Fixed Costs 155,040 Total Costs$231,360 Cost per unit Variable Cost per unit Fixed Cost per Unit Total Cost per unit

2. Suppose Sandy Bank sells its canoes for $510 each. Calculate the contribution margin per canoe and the contribution margin ratio. (Round your intermediate calculations and final answers to 2 decimal places. Round your "percentage" answer to 2 decimal places. (i.e. .1234 should be entered as 12.34%.))  Unit Contribution Margin per Canoe Contribution Margin Ratio % 3. This year Sandy Bank expects to sell 840 canoes. Prepare a contribution margin income statement for the company. (Round your intermediate calculations to 2 decimal places.)  Sandy Banks, Inc. Contribution Margin Income Statement For the current year  Contribution Margin Income From Operations 4. Calculate Sandy Bank’s break-even point in units and in sales dollars. (Round final answers to the nearest whole number).  Break-even units Canoes Break-even sales revenue 5. Suppose Sandy Bank wants to earn$72,000 profit this year. Calculate the number of canoes that must be sold to achieve this target. (Round Unit Contribution Margin to 2 decimal places. Round your answer to the next whole number.)

 Target Sales Unit Canoes

Solutions

Expert Solution

Variable cost remains same per unit of output and fixed costs remain same in total and do not change with change in output

1.

 Number of Canoes Sold and Purchased 480 570 780 Total Cost Variable Costs $76,320 90,630 124,020 Fixed Costs 155,040 155,040 155,040 Total Costs$231,360 245,670 279,060 Cost per unit Variable Cost per unit 159 159 159 Fixed Cost per Unit 323 272 198.77 Total Cost per unit 482 431 357.77

2.Contribution Margin per Canoe = Selling Price per Canoe – Variable Cost per Canoe

= $510-$159 = $351 CM Ratio = CM/Sales = 351/510 = 68.82% 3.  Sandy Banks, Inc. Contribution Margin Income Statement For the current year  Sales 840*510 428,400 Less: Variable Costs 840*159 133,560 Contribution Margin 294,840 Less: Fixed Costs 155,040 Income From Operations 139,800 4.Brek even units = Fixed costs/CM per Unit = 155,040/351 = 442 units Break even sales revenue = 155,040/68.82% =$225,283.35

5.Target Profit = $72,000 Add: Fixed Costs =$155,040