Question

 

Geraldo Inc. sells several products. Information of average revenue and costs is as follows:

Selling price per unit	$30.00
Variable costs per unit:
Direct material	$4.13
Direct manufacturing labour	$1.50
Manufacturing overhead	$1.46
Selling costs	$1.85
Annual fixed costs	$110,000

1. The Geraldo Inc. contribution margin ratio is
   1. 33.13%
   2. 42.51%
   3. 29.82%
   4. 63.70%
   5. 70.20%

 

2. The Geraldo Inc. break-even point in sales dollars is
   1. $156,693.
   2. $156,696.
   3. $156,695.1.
   4. $156,720.
   5. $156,690.

 

3. The Geraldo Inc. break-even point in units is
   1. 5,223 units.
   2. 5,224 units.
   3. 5,223.17 units.
   4. 5,223.2 units.
   5. 5,223.1 units.

Answer 1

Answer of Part 1: The correct option is E i.e. 70.20%

Variable Cost per unit = Direct Material + Direct Manufacturing Labour + Manufacturing Overhead + Selling Costs
Variable Cost per unit = $4.13 + $1.50 + $1.46 + $1.85
Variable Cost per unit = $8.94

Contribution Margin per unit = Selling price per unit – Variable Cost per unit
Contribution Margin per unit = $30 - $8.94
Contribution Margin per unit = $21.06

Contribution Margin Ratio = Contribution Margin per unit / Selling Price per unit *100
Contribution Margin Ratio = $21.06 / $30 *10
Contribution Margin Ratio = 70.20%

Answer of Part 2: The correct option is C i.e. $156,695.1

Break Even Point in Sales Dollars = Annual Fixed Cost / Contribution Margin Ratio
Break Even Point in Sales Dollars = $110,000 / 0.7020
Break Even Point in Sales Dollars = $156,695.1

Answer of Part 3: The correct option is C i.e. 5,223.17 Units

Break Even Point in Units = Annual Fixed Cost / Contribution Margin per unit
Break Even Point in Units = $110,000 / $21.06
Break Even Point in Units = 5,223.17 units