Question

Basic Cost-Volume-Profit Concepts

Klamath Company produces a single product. The projected income statement for the coming year is as follows:

Sales (69,600 units @ $35.00)	$2,436,000
Total variable cost	1,388,520
Contribution margin	$ 1,047,480
Total fixed cost	1,131,760
Operating income	$ (84,280)

Required:

1. Compute the unit contribution margin and the units that must be sold to break even.

Unit contribution margin	$
Break-even units	units

2. Suppose 10,000 units are sold above breakeven. What is the operating income?
$

3. Compute the contribution margin ratio. Use the contribution margin ratio to compute the break-even point in sales revenue.

Contribution margin ratio	%
Break-even sales revenue	$

Suppose that revenues are $200,000 more than expected for the coming year. What would the total operating income be?
$

Answer 1

1 )	Contribution margin = Sales - Variable cost
	= 2436000-1388520
	1047480
	Now we will divide contribituin by no. of units sold to caluclate contrinution margin per unit
	Contrinution margin per unit = 1407480/69600
			15.05	per unit
	Break Even (Units) = Fixed cost/ Contribution margin
	=1131760 / 15.05
		75200	Units
2)	Above breakeven units profit per unit is always eqaul to contibution per unit
	Addition to operating income = 10000*15.05
			150500
	Total operating income would be = (-84280) + 150500
			66220
3)	Contribution margin ratio = Total contribution / Total revenue
	=1047480/2436000
	43.00%
	Break Even in Dollars = Total Fixed Cost / Contribution margin ratio
	=1131760/43%
	2632000
4)	If revenue will be $200000 more the contribution will be $86000 more and also net income would be $86000 more.(200000*43%)
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