Question

Current operating income for Bay Area Cycles Co. is $32,000. Selling price per unit is $100, the contribution margin ratio is 20%, and fixed expense is $128,000.

Required:

1. Calculate Bay Area Cycle’s per unit variable expense and contribution margin. How many units are currently being sold?

	Per Unit Volume Total Ratio Revenue $100.00 100 % Variable expense ? ? % Contribution margin ? ? ? 20 % Fixed expense (128,000) Operating income $32,000

2. How many additional unit sales would be necessary to achieve operating income of $80,000?

Answer 1

1)			Per Unit	Volume	Total	Ratio			No. of units currently being sold =				Fixed Expense + Operating Income
	Revenue		$ 100.00			100%							Contribution Margin p.u
	V.Expense		$    80.00			80%
	Cont. Margin		$    20.00	8000	$    160,000.00	20%						=	$ 128000 + $ 32000
	F.Expense				$ (128,000.00)								$            20.00
	Operating Income				$      32,000.00
												=	8000	units

2)	Desired operating income =			$    80,000.00
	Fixed Cost =			$ 128,000.00
	Contribution P.u =			$            20.00
	No. of units to be sold to
	get the desired income =			Fixed Expense + Desired Income
				Contribution Margin p.u
			=	$ 128000 + $ 80000
				$            20.00
			=	10400	units
	Current sales =			8000	units
	Additional Units to be sold =			10400 units - 8000 units
			=	2400	units