Question

1. Company is experiencing erratic sales of its product - a special battery. This month it generated a loss of $36,000. Company sold 16,000 units for the month and has the following account balances for the income statement:

Sales (16,000 units)     $480,000

Variable expenses       $336,000

Fixed expenses            $180,000

Compute the contribution margin ratio and the contribution margin per unit.

1. Compute the break-even point in Sales revenue ($).
2. How many units need to be sold for income before tax of $90,000?
3. Assume for this question only that the company president believes a 10% decrease in the sales price and a $10,000 increase in the advertising costs will double the volume of sales from the 16,000 in the current month. If this is correct, what will Tyler report as the new net income or loss?

Answer 1

			Unit	Rate	Value
		Sales	16,000	$              30	$        480,000
		Variable Expense	16,000	$              21	$        336,000
		Contribution	16,000	$                9	$        144,000
		Fixed Cost			$        180,000
		Loss			$        (36,000)
		Contribution Margin Ratio		30	%
		Contribution Margin per unit		$                     9
	(a)	Break Even Point		180000/30%
		Break Even Point		$   600,000
		(In Sales Revenue)
	(b)	Units		(180000+90000)/9
		Units		30,000
	(c )		Unit	Rate	Value
		Sales	32,000	$              27	$        864,000
		Variable Expense	32,000	$              21	$        672,000
		Contribution	32,000	$                6	$        192,000
		Fixed Cost			$        190,000
		New Net Income			$            2,000