Question

PA6-1 (Algo) Calculating Contribution Margin, Contribution Margin Ratio, Break-Even Point [LO 6-1, 6-2]

Hermosa, Inc., produces one model of mountain bike. Partial information for the company follows:

Number of bikes produced and sold		500		800		1,000
Total costs
Variable costs	$	118,000	$	?	$	?
Fixed costs per year		?		?		?
Total costs		?		?		?
Cost per unit
Variable cost per unit		?		?		?
Fixed cost per unit		?		?		?
Total cost per unit		?	$	513.75		?

Required:
1. Complete the table.

2. Calculate Hermosa’s contribution margin ratio and its total contribution margin at each sales level indicated in the table assuming the company sells each bike for $650.

4. Calculate Hermosa’s break-even point in units and sales revenue.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 4

Complete the table. (Round your "Cost per Unit" answers to 2 decimal places.)

	Number of bikes produced and sold 500 Units 800 Units 1000 Units Total costs Variable costs $118,000 Fixed costs per year Total costs Cost per unit Variable cost per unit Fixed cost per unit Total cost per unit $513.75

• Required 2

Calculate Hermosa’s contribution margin ratio and its total contribution margin at each sales level indicated in the table assuming the company sells each bike for $650. (Round your percentage answers to 2 decimal places. (i.e. .1234 should be entered as 12.34%.))

	500 Units 800 Units 1000 Units Contribution Margin Ratio % % % Total Contribution Margin

• Required 4

Calculate Hermosa’s break-even point in units and sales revenue. (Round your "Unit" and "Sales Revenue" answers to the nearest whole number.)

	Break-Even Units Bikes Break-Even Sales Revenue

Answer 1

Total fixed costs remains same at all levels. However, Variable costs changes with change in levels of sales.

Number of bikes produced and sold		500		800		1,000
Total costs
Variable costs	$	118,000	$	$188,800[$236*800]	$	$236,000
Fixed costs per year	$	222,200		$222,200[$277.75*800]	$	222,200
Total costs		$340,200		$411,000	$	458,200
Cost per unit		$680.4[340,200/500]		$513.75[411,000/800]	$	458.2
Variable cost per unit		$236		$236		$236
Fixed cost per unit		$444.4[$222,200/500]		$277.75		$222.2[$222,200/1000]
Total cost per unit		$680.4	$	513.75		$458.2

Variable cost per unit = $118,000/500

=$236 per unit

we will use total cost per unit to find fixed costs

Total cost= variable cost+fixed cost

$513.75= $236+ fixed cost

fixed cost $277.75

2.

Number of bikes produced and sold		500		800		1,000
sales		$650		$650		$650
Variable costs	$	236	$	236	$	236
COntribution margin	$	$414	$	414	$	414
Contribution margin ratio[Contribution margin/sales]		63.69%[414/650]		63.69%		63.69%
Total contribution margin		$207,000[500*414]		$331,200[800*414]		$414,000[1000*$414]

4.break even point= Fixed cost/ cm per unit

=$222,200/$414

=537 units

break even sales in dollars= fixed costs/ cm ratio

=$222,200/63.69%

=$348,877

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