Question

Relax Company manufactures and sells an electronic device to automobile manufacturers. The device intimates the car user about the service status. Following data relates to the Relax Company for the year ended on December 31, 2019:

Total $

Sales	2,400,000
Less variable costs	1,800,000
Contribution margin	600,000
Less Fixed Costs	250,000
Net Operating income	350,000

During 2019, company’s selling price per unit and variable cost per unit has been $60 and $40 respectively.

Calculate:

1. CM per unit                                                                        
2. Variable costs ratio.                                                            
3. Break-even point in units.                                            
4. Beak-even point in sales dollars.                              

Answer 1

1	CM Per Unit	$ 15
2	Variable Cost Ratio	75%
3	Breakeven Points In Units	16,666.67 unit
4	Breakeven Point In sales dollar	$ 1,000,000

(A) CM Per Unit:

= Sales Pu- Variable Cost P.U

= $ 60 - $45

= $ 15

Explanation:

1) PV Ratio:

= Contribution ÷ Sales

= 600,000 ÷ 2,400,000 × 100

= 25%

2) This implies contribution Margin is 25% of sales and variable cost would be 75% of sales( 1-25%)

3) Here, sales per unit is $ 60, therfore variable cost per unit would be:

$60 × 75% = $ 45

4) we can verify the same:

Sales ( 2,400,000 ÷ $60)	40,000 unit
Variable ( 1,800,000 ÷ 45)	40,000 unit

Here, units get tallied if we use given $40 cost per variable, units will not match. ( $ 1,800,000 ÷ $40= $45000 units)

(2)  Variable costs ratio:

= Variable cost÷ sales

= $ 1,800,000 ÷ 2,400,000

= 75%

(3) Breakeven Points In Units:

= fixed cost ÷ CM per unit

= $ 250,000 ÷ $15

= 16,666.67 unit

( 4) Break-even point in sales dollar

= Fixed cost ÷ ( 1- variable ratio)

= $ 250,000 ÷ ( 1- 75%)

= $ 250,000 ÷ 0.25

= $ 1,000,000