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E6-5 Calculating Contribution Margin and Contribution Margin Ratio; Identifying Break-Even Point, Target Profit [LO 6-1, 6-2]...

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.)

Number of Canoes Produced and Sold 470 560 720
Total costs
Variable Costs $70,030
Fixed Costs 153,220
Total Costs $223,250 $0 $0
Cost per Unit
Variable Cost per Unit
Fixed Cost per Unit
Total Cost per Unit $0.00 $0.00 $0.00

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%.))

Unit Contribution Margin per Canoe
Contribution Margin Ratio %

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.)

SANDY BANK, Inc.
Contribution Margin Income Statement
For the Current Year
Contribution Margin
Income from Operations

4. Calculate Sandy Bank’s break-even point in units and in sales dollars. (Round final answers to the nearest whole number).

Break-Even Units Canoes
Break-Even Sales Revenue


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.)

Target Sales Units ? Canoes

Solutions

Expert Solution

Answer 1

Variable cost per unit is constant for all level of production. Total fixed cost constant for all level

Number of Canoes Produced and Sold

470

560

720

Total costs

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

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.

Contribution Margin Income Statement

For the Current Year

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

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

Add: target profit

           82,000

Total contribution required to earn target profit

         235,220

Divided by : Unit Contribution Margin

361

Target Sales Units

                 652

Canoes

ekkarill92 answered 1 year ago
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