Question

In: Accounting

Suppose Morrison Corp.’s breakeven point is revenues of $1,100,000. Fixed costs are $660,000. Use Morrison Corp.’s...

Suppose Morrison Corp.’s breakeven point is revenues of $1,100,000. Fixed costs are $660,000.

Use Morrison Corp.’s contribution margin percentage to compute the selling price if variable costs are $16 per unit.

a) $25.60

b) $24.00

c) $40.00

d) $26.67

Expert Solution

Answer)

Calculation of Selling price per unit

Let the selling price be $ Y

Contribution margin per unit = Selling price per unit – variable cost per unit

Selling price per unit X Contribution margin ratio = Selling price per unit – variable cost per unit

$ Y x 60% = $ Y - $ 16

0.60Y = Y - $ 16

Y = $ 40.00

Therefore the selling price is $ 40.00 per unit

Working Note:

Calculation of Contribution margin ratio

Sales at break-even point (in dollars) = Total fixed cost/ Contribution margin ratio

Contribution margin ratio = Total fixed cost/ Sales at break-even point in dollars

=$ 660,000/ $ 1,100,000

= 0.60 or 60%

ekkarill92 answered 2 years ago

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