Question

Adams Company sells a single product. The product sells for $100 per unit. The company’s variable expenses are 80% of sales and its fixed expenses total $150,000 per year. a: What is the company’s contribution margin ratio? b: What is the company’s break-even point? (Give answer in dollars and in units.)

Answer 1

	CALCULATION OF CONTRIBUTION MARGIN
	PARTICULARS	AMOUNT
	Selling Price Per Unit=	$                         100
	Less: Variable Cost Per Unit 80%	$                           80
	Contribution Margin	$                           20
	Answer = 1
	Contribution margin = Sales - Variable Costing / Sales
	Contribution margin = $ 20 / $ 100
	Contribution margin = 0.20 or 20%
	Answer = 2
	CALCULATION OF THE BREAK EVEN POINT IN DOLLARS
	Break Even point =      Fixed Cost / Contribution Margin Ratio
	Break Even point =
	Fixed Cost =	$               1,50,000
	Divide By	"/" By
	Contribution Margin Ratio =	0.20
	Break Even point =	$               7,50,000
	CALCULATION OF THE BREAK EVEN POINT IN UNITS
	Break Even point =      Fixed Cost / Contribution Margin Per Unit
	Break Even point =
	Fixed Cost =	$               1,50,000
	Divide By	"/" By
	Contribution Margin Per Unit =	$                           20
	Break Even point =	7500	Units
	Answer Break even point in units = 7,500 Units