Question

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

Answer 1

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

Desired Contribution Margin = $227,040

Number of units = 227,040/351

= 647 units