Question

1. Price, Variable Cost per Unit, Contribution Margin, Contribution Margin Ratio, Fixed Expense

   For each of the following independent situations, calculate the amount(s) required.

   Required:

   1. At the break-even point, Jefferson Company sells 85,000 units and has fixed cost of $351,900. The variable cost per unit is $0.30. What price does Jefferson charge per unit? Note: Round to the nearest cent.
   $

   2. Sooner Industries charges a price of $136 and has fixed cost of $391,500. Next year, Sooner expects to sell 15,500 units and make operating income of $175,000. What is the variable cost per unit? What is the contribution margin ratio? Note: Round your variable cost per unit answer to the nearest cent. Enter the contribution margin ratio as a percentage, rounded to two decimal places.

   Variable cost per unit	$
   Contribution margin ratio		%

   3. Last year, Jasper Company earned operating income of $13,320 with a contribution margin ratio of 0.15. Actual revenue was $222,000. Calculate the total fixed cost. Note: Round your answer to the nearest dollar, if required.
   $

   4. Laramie Company has variable cost ratio of 0.35. The fixed cost is $135,200 and 26,000 units are sold at break-even. What is the price? What is the variable cost per unit? The contribution margin per unit? Note : Do NOT round interim computations. Round answers to the nearest cent.

   Price	$
   Variable cost per unit	$
   Contribution margin per unit	$

Answer 1

Answer:

Part – 1:

The sales price each unit is $4.44

Part – 2:

a.

The variable cost each unit is $99.45

b.

The contribution ratio is 26.86%.

Part – 3:

The amount of fixed cost is $19,980.

Part – 4:

a.

The sales price each unit is $8.

b.

The variable cost each unit is $2.8

c.

The contribution each unit is $5.2

Explanation:

Part – 1:

Computation of sales price each unit is:

Sales price each unit = (Amount of variable cost + Amount of fixed cost) / No. of sales unit

= ($25,500 + $351,900) / 85,000

= $377,400 / 85,000

= $4.44

Hence, the sales price each unit is $4.44

Working Notes:

Computation the amount of variable cost is:

Amount of variable cost = No. of sales units * Variable cost each unit

= 85,000 * $0.30

= $25,500

Hence, the amount of variable cost is $25,500.

Part – 2:

a.

Computation of variable cost each unit is:

Variable cost each unit = Amount of variable cost / No. of sales units

= $1,541,500 / 15,500

= $99.45

Hence, the variable cost each unit is $99.45

Working Notes:

Step – 1:

Computation of sales price is:

Sales price = No. of sales units * Sales price each unit

= 15,500 * $136

= $2,108,000

Hence, the sales price is $2,108,000.

Step – 2:

Computation the amount of variable cost is:

Amount of variable cost = Sales price – Operating income – Amount of fixed cost

= $2,108,000 - $175,000 - $391,500

= $1,541,500

Hence, the amount of variable cost is $1,541,500.

b.

Computation of contribution ratio is:

Contribution ratio = (Amount of contribution per unit / Sales price each unit) * 100

= ($36.55 / $136) * 100

= 0.2686 * 100

= 26.86%

Hence, the contribution ratio is 26.86%.

Working Notes:

Computation the amount of contribution each unit is:

Amount of contribution each unit = Sales price per unit – Amount of variable cost each unit

= $136 - $99.45

= $36.55

Hence, the amount of contribution each unit is $36.55

Part – 3:

Computation the amount of fixed cost is:

Amount of fixed cost = Actual revenue – Operating income – Amount of variable cost

= $222,000 - $13,320 - $188,700

= $19,980

Hence, the amount of fixed cost is $19,980.

Working Notes:

Computation the amount of variable cost is:

Amount of variable cost = Actual revenue * (1 – Contribution ratio)

= $222,000 * (1 – 0.15)

= $222,000 * 0.85

= $188,700

Hence, the amount of variable cost is $188,700.

Part – 4:

a.

Computation of sales price each unit is:

Sales price each unit * No. of sales units = 9,100 * Sales price each unit + Amount of fixed cost

S * 26,000 = 9,100 * S + $135,200

26,000S – 9,100S = $135,200

16,900S = $135,200

S = $135,200 / 16,900

S = $8

Hence, the sales price each unit is $8.

Working Notes:

Computation the amount of variable cost is:

Amount of variable cost = No. of sales units * Variable cost ratio * Sales price each unit

= 26,000 * 0.35 * Sales price each unit

= 9,100 * Sales price each unit

Hence, the amount of variable cost is 9,100 * Sales price each unit.

b.

Computation of variable cost each unit is:

Variable cost per unit = Sales price each unit * Variable cost ratio

= $8 * 0.35

= $2.8

Hence, the variable cost each unit is $2.8

c.

Computation of contribution each unit is:

Contribution each unit = Sales price each unit – Variable cost each unit

= $8 - $2.8

= $5.2

Hence, the contribution each unit is $5.2