Question
In: Accounting
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 2 months agoRelated Solutions
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 $1,350,000 Costs Goods sold 607,500 Labor $288,000
108,000 Supplies 3,600 9,000 Utilities 21,600 23,400 Rent 43,200 0
Advertising 10,800 44,100 Miscellaneous 10,800 18,000 Total costs
$378,000 $810,000 (1,188,000) Net income $ 162,000 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...
Contribution Margin Concepts The following information is taken from the 2017 records of Hendrix's Guitar Center....
Contribution Margin Concepts
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Fixed
Variable
Total
Sales
$1,500,000
Costs
Goods sold
675,000
Labor
$320,000
120,000
Supplies
4,000
10,000
Utilities
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26,000
Rent
48,000
0
Advertising
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49,000
Miscellaneous
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20,000
Total costs
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$900,000
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Net income
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Contribution margin ratio: Answer
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