Question

Price, Variable Cost per Unit, Contribution Margin, Contribution Margin Ratio, Fixed Expense

For each of the following independent situations, calculate the amount(s) required.

Required:

1. At the break-even point, Jefferson Company sells 95,000 units and has fixed cost of $349,700. The variable cost per unit is $0.15. What price does Jefferson charge per unit? Note: Round to the nearest cent.
$

2. Sooner Industries charges a price of $129 and has fixed cost of $421,000. Next year, Sooner expects to sell 14,400 units and make operating income of $191,000. What is the variable cost per unit? What is the contribution margin ratio? Note: Round your variable cost per unit answer to the nearest cent. Enter the contribution margin ratio as a percentage, rounded to two decimal places.

Variable cost per unit	$
Contribution margin ratio		%

3. Last year, Jasper Company earned operating income of $22,900 with a contribution margin ratio of 0.25. Actual revenue was $229,000. Calculate the total fixed cost. Note: Round your answer to the nearest dollar, if required.
$

4. Laramie Company has variable cost ratio of 0.40. The fixed cost is $90,000 and 30,000 units are sold at break-even. What is the price? What is the variable cost per unit? The contribution margin per unit? Note : Do NOT round interim computations. Round answers to the nearest cent.

Price	$
Variable cost per unit	$
Contribution margin per unit	$

Answer 1

Break even point (BEP) is the sales volume at which revenue equals cost (i.e no profit no loss)

Answer to Part 1

BEP (in units) = Total fixed cost/(selling price per unit - variable cost per unit)

95000 = 349700/(x - 0.15)

x - 0.15 = 349700/95000

x - 0.15 = 3.69

x = 3.69 + 0.15

= 3.84

jeferrson should charge $ 3.84.

Answer to Part 2

BEP for target profit = (Fixed cost + desired income)/(selling price per unit - variable cost per unit) --------(1)

BEP for target profit = 14400 units

fixed cost = $ 421000

desired net income = $ 191000

selling price per unit = $ 129

variable cost per unit = ?

put all the values in above equation

14400 = (421000+191000)/(129 - x)

129 - x = 612000/14400

129 - x = 42.5

x = 129 - 42.5

x = 86.5

variable cost per unit = $ 86.5

contribution margin ratio = (selling price per unit - variable cost per unit)/selling price per unit *100

= (129 - 86.5)/129*100

= 42.5/129*100

= 0.329457*100

= 32.94%

Answer to Part 3

operating income = $ 22900

contribution margin ratio = 0.25

sales = $ 229000

Total fixed cost = ?

contribution margin ratio = (sales - variable cost)/sales

0.25 = (229000-x)/229000

0.25*229000 = (229000-x)

57250 = 229000-x

x = 229000-57250

= 171750

formula of operating income = sales - variable cost - fixed cost

so fixed cost = sales - variable cost - operating income

= 229000 - 171750 - 22900

= 34350

Answer to Part 4

variable cost ratio = variable cost /sales = 0.40

fixed cost = $ 90000

BEP in unit = 30000 units

suppose sales = x, then variable cost = 0.40x

BEP in units = total fixed cost/(selling price per unit - variable cost per unit)

30000 = 90000/(x-0.40x)

x - 0.40x = 90000/30000

x - 0.40x = 3

0.60x = 3

x = 3/0.60

= 5

selling price per unit = $ 5

variable cost per unit = 0.40*of selling price

= 0.40*5

= $ 2

contribution margin per unit = (selling price per unit - variable cost per unit)/selling price per unit

= (5-2)/5

= 3/5

= 0.60

or 60%.

Please check with your answer and let me know.