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Contribution Margin Concepts The following information is taken from the 2017 records of Hendrix's Guitar Center....

Contribution Margin Concepts
The following information is taken from the 2017 records of Hendrix's Guitar Center.

Fixed Variable Total
Sales $2,250,000
Costs
Goods sold 1,012,500
Labor $480,000 180,000
Supplies 6,000 15,000
Utilities 36,000 39,000
Rent 72,000 0
Advertising 18,000 73,500
Miscellaneous 18,000 30,000
Total costs $630,000 $1,350,000 (1,980,000)
Net income $ 270,000

Required


(a.) Determine the annual break-even dollar sales volume.

Contribution margin ratio: Answer
Annual break-even dollar sales volumes: $Answer

(b.) Determine the current margin of safety in dollars.  
$Answer

(c.) Prepare a cost-volume-profit graph for the guitar shop. Label both axes in dollars with maximum values of $1,000,000. Draw a vertical line on the graph for the current ($750,000) sales level, and label total variable costs, total fixed costs, and total profits at $75,000 sales.

(d.) What is the annual break-even dollar sales volume if management makes a decision that increases fixed costs by $100,000?
$Answer

Solutions

Expert Solution

Answer:

(a)
sales =$2250000
Less: Variable cost:
goods sold =1012500
Labs = 180000
   Supplies = 15000
Utilities = 39,000
Advertising = 73500
Miscelloneous = 30,000
Total variable cost = (1350000)
Contribution margin ratio = 900000

Contribution margin ratio = contribution margin / sales
= $900,000/$2250000
= 40%

Annual breakeven dollars sales volume = fixed cost / contribution margin ratio
= $630000 / 40%
= $1575000

(b)  
current marginal safety in dollar = current sales level - Break even sales level
= $2250000 - $1575000
= $675000

(c)

Sales level Total variable cost Total fixed cost Total profit
2250000 1350000 630000 270000
2375000 1425000 630000 320000
2500000 1500000 630000 370000
2625000 1575000 630000 420000
2750000 1650000 630000 470000
2875000 1725000 630000 520000

(d)

Annual breakeven dollars sales volume = total fixed cost / contribution margin
= ($630000 + $100000) / 40%
= $730000/40%
= $1825000

ekkarill92 answered 1 hour ago
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