Question

In: Accounting

New Berlin Corporation has annual fixed costs of $800,000, variable costs of $48 per unit, and...

New Berlin Corporation has annual fixed costs of $800,000, variable costs of $48 per unit, and a contribution margin ratio of 40 percent.

a. Compute the unit sales price and unit contribution margin for the above product.

b. Compute the sales volume in units required for New Berlin Corporation to earn an operating income of $600,000.

c. Compute the dollar sales volume required for New Berlin Corporation to earn an operating income of $600,000.

Solutions

Expert Solution

Solution:

Given data is as follows

Fixed cost = $ 8,00,000

Variable cost = $ 48.00

Contribution margin ratio = 40 % of sale price per unit

a) Computation of Sale price and contribution margin per unit :

Contribution margin ratio = 40 %

(Contribution margin / Sale price per unit ) = 40 %

Contribution margin = Sale price – Variable cost

[(Sale price – Variable cost ) / sale price per unit ] = 40 %

(Sale price - $ 48) / Sale price = 0.4

Sale price - $ 48 = 0.4 sale price

Sale price – 0.4 sale price = $ 48

0.6 sale price = $ 48

Sale price = $ 48 / 0.6

Sale price = $ 80

Contribution margin per unit = Sale price * Contribution margin ratio

                                            = $ 80 * 40%(contribution margin ratio)

                                             = $ 32.00

Conclusion

1) Unit sale price shall be = $ 80.00

2) Contribution per unit = $ 32.00

b) Computation of sales volume in units required for New Berlin Corporation to earn an operating income of $600,000.

Fixed cost = $ 8,00,000

Desired Operating income = $ 6,00,000

Contribution per unit = $ 32.00

Number of sale units required = (Fixed costs+ Desired operating income / Contribution per unit)

= ( $ 8,00,000 + $ 6,00,000 / $ 32)

                                             = 43,750 units

Sales volume  required to earn an operating of $ 6,00,000 shall be 43,750 units

c) Computation of dollar sales volume required for New Berlin Corporation to earn an operating income of $600,000.

Sales value in dollars shall be = Number of sale units required * Sale price per unit

                                                    = 43,750 units *$ 80

                                                    = $ 35,00,000

Sales value required in dollars to earn an operating income of $ 6,00,000 shall be $ 35,00,000

Please do rate if my answer was found helpful. Thankyou !!!!!

ekkarill92 answered 1 year ago
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