In: Accounting
E6-5 Calculating Contribution Margin and Contribution Margin Ratio; Identifying Break-Even Point, Target Profit [LO 6-1, 6-2]
Sandy Bank, Inc., makes one model of wooden canoe. Partial
information for it follows:
Required:
1. Complete the following table. (Round your "Cost
per Unit" answers to 2 decimal places.)
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2. Suppose Sandy Bank sells its canoes for $510
each. Calculate the contribution margin per canoe and the
contribution margin ratio. (Round your intermediate
calculations and final answers to 2 decimal places. Round your
"percentage" answer to 2 decimal places. (i.e. .1234 should be
entered as 12.34%.))
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3. This year Sandy Bank expects to sell 810
canoes. Prepare a contribution margin income statement for the
company. (Round your intermediate calculations to 2 decimal
places.)
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4. Calculate Sandy Bank’s break-even point in
units and in sales dollars. (Round final answers to the
nearest whole number).
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5. Suppose Sandy Bank wants to earn $82,000 profit
this year. Calculate the number of canoes that must be sold to
achieve this target. (Round Unit Contribution Margin to 2
decimal places. Round your answer to the next whole
number.)
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Answer 1
Variable cost per unit is constant for all level of production. Total fixed cost constant for all level |
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Number of Canoes Produced and Sold |
470 |
560 |
720 |
Total costs |
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Variable Costs (149*Number of Canoes Produced and Sold) |
70,030 |
83,440 |
107,280 |
Fixed Costs |
153,220 |
153,220 |
153,220 |
Total Costs |
223,250 |
236,660 |
260,500 |
Cost per Unit |
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Variable Cost per Unit (70030/470) |
149.00 |
149.00 |
149.00 |
Fixed Cost per Unit (Fixed Costs / Number of Canoes Produced and Sold) |
326.00 |
273.61 |
212.81 |
Total Cost per Unit |
475.00 |
422.61 |
361.81 |
Answer 2
Selling price |
510 |
Per Canoe |
Less: variable cost |
149 |
Per Canoe |
Unit Contribution Margin |
361 |
Per Canoe |
Contribution Margin Ratio (Unit Contribution Margin / selling price) |
70.78% |
% |
Answer 3
SANDY BANK, Inc. |
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Contribution Margin Income Statement |
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For the Current Year |
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Sales (810*510) |
413,100 |
Less: variable cost (810*149) |
120,690 |
Contribution Margin |
292,410 |
Less: fixed cost |
153,220 |
Income from Operations |
139,190 |
Answer 4
Total fixed cost |
153,220 |
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Divided by : Unit Contribution Margin |
361 |
|
Break-Even Units |
424 |
Canoes |
Break-Even Sales Revenue (fixed cost / 70.78% contribution margin ratio) |
216,474 |
Answer 5
Total fixed cost |
153,220 |
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Add: target profit |
82,000 |
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Total contribution required to earn target profit |
235,220 |
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Divided by : Unit Contribution Margin |
361 |
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Target Sales Units |
652 |
Canoes |