Question

PA6-1 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		510		800		970
Total costs
Variable costs	$	126,990	$	?	$	?
Fixed costs per year		?		?		?
Total costs		?		?		?
Cost per unit
Variable cost per unit		?		?		?
Fixed cost per unit		?		?		?
Total cost per unit		?	$	533.75		?

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


  
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 $780. (Round your percentage answers to 2 decimal places. (i.e. .1234 should be entered as 12.34%.))



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

Answer 1

1. Complete the table

Number of bikes produced and sold		510		800		970
Total Costs
Variable Costs	$	126,990	$	199,200	$	241,530
Fixed costs per year	$	227,800	$	227,800	$	227,800
Total Costs	$	354,790	$	427,000	$	469,330
Cost per unit
Variable cost per unit	$	249	$	249	$	249
Fixed cost per unit	$	446.67	$	284.75	$	234.84
Total Cost per unit	$	695.67	$	533.75	$	483.84

2. Contribution margin ratio and total contribution

Number of bikes produced and sold	510	800	970
Selling price	$ 780	$ 780	$ 780
Sales	$ 397,800	$ 624,000	$ 756,600
Less: Variable Cost	$ 126,990	$ 199,200	$ 241,530
Contribution margin	$ 270,810	$ 424,800	$ 515,070
Contribution margin ratio	68.07%	68.07%	68.07%

3. Break even point

Break Even Point in units = Total Fixed cost / Contribution margin per unit

= $ 229,500 / ($ 780-249)

= $ 229,500/ 531 = 432 units

(As per the calculation we get the answer as 432.20units. It rounded to 432 units being the nearest whole number)

Break Even Point in dollar sales =Break even point in units*Selling price per unit

=432 units* $780 = $ 336,960