Question

1.

Contribution Margin and Contribution Margin Ratio

For a recent year, Wicker Company-owned restaurants had the following sales and expenses (in millions):

Sales	$32,100
Food and packaging	$8,317
Payroll	8,100
Occupancy (rent, depreciation, etc.)	10,023
General, selling, and administrative expenses	4,700
	$31,140
Income from operations	$960

Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses.

a. What is Wicker Company's contribution margin? Round to the nearest million. (Give answer in millions of dollars.)
$ million

b. What is Wicker Company's contribution margin ratio? Round to one decimal place.
%

c. How much would income from operations increase if same-store sales increased by $1,900 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the closest million.
$ million

2.

Break-Even Sales and Sales to Realize Income from Operations

For the current year ending October 31, Yentling Company expects fixed costs of $533,200, a unit variable cost of $64, and a unit selling price of $95.

a. Compute the anticipated break-even sales (units).
units

b. Compute the sales (units) required to realize income from operations of $124,000.
units

3.

Break-Even Sales

Currently, the unit selling price of a product is $240, the unit variable cost is $200, and the total fixed costs are $476,000. A proposal is being evaluated to increase the unit selling price to $270.

a. Compute the current break-even sales (units).
units

b. Compute the anticipated break-even sales (units), assuming that the unit selling price is increased to the proposed $270, and all costs remain constant.
units

4.

Sales Mix and Break-Even Sales

Dragon Sports Inc. manufactures and sells two products, baseball bats and baseball gloves. The fixed costs are $836,000, and the sales mix is 30% bats and 70% gloves. The unit selling price and the unit variable cost for each product are as follows:

Products	Unit Selling Price		Unit Variable Cost
Bats	$70		$50
Gloves	180		110

a. Compute the break-even sales (units) for both products combined.
units

b. How many units of each product, baseball bats and baseball gloves, would be sold at break-even point?

Baseball bats	units
Baseball gloves	units

Answer 1

Question 1

Part A

Contribution margin = sales - variable cost

= 32100 - (8317+8100+(40%*4700)) = $13803

Part B

Contribution margin ratio = contribution margin / sales = 13803/32100 = 43%

Part C

Increase in income from operations = $1,900*43% = $817 million

Question 2

Contribution margin = selling price per unit - variable cost per unit = 95-64 =31

Part A

break-even sales (units) = fixed cost / contribution margin Per unit = 533200/31 = 17200 units

Part B

Desired sales = (fixed cost + net operating income) / contribution margin Per unit = (533200+124000)/31 = 21200 units

Question 3

Part A

current break-even sales (units) = fixed cost / contribution margin Per unit

Contribution margin Per unit = selling price per unit - variable cost per unit = 240-200 = 40

Current break even sales (units) = 476000/40 = 119000 units

Part B

anticipated break-even sales (units) = 476000/(270-200) = 476000/70 = 6800 units

Question 4

Part A

Average contribution margin = (250-160)/2 = 45

break-even sales (units) for both products combined = 836000/45 = 18578

Part B

Baseball bats = 18578*30% = 5573 units

Baseball gloves = 18578*70% = 13005 units