Question

The following information is given for Egele Kamp. Inc Unit sales price $ 10 Variabe cost per unit 6 Total fixed costs 50,000 Determine the following : (a) Contribution margin per unit (b) Contribution margin ratio (c) Break even sales in units (d) Break even sales in dollars (e) Sales in units required to achieve a net income of $ 4,000 (f) Sales in units required to achieve a net income of 15 percent of sales.

Answer 1

a)contribution per unit =price - variable cost

                 = 10 -6

                 = $ 4 per unit

b)Contribution margin ratio=contribution /price

         = 4/ 10

         =.40 or 40%

c)Break even sales in units =Fixed cost /contribution per unit

        = 50000/4

           = 12500 units

d)Break even sales in dollars = Fixed cost /CM ratio

        = 50000/.40

          = $ 125000

e)Sales in units required to achieve a net income of $ 4,000 =[Fixed cost+ target income ]/contribution per unit

       =[50000+4000]/4

         = 54000/4

          = 13500 units

f)Sales in units required to achieve a net income of 15 percent of sales:

Let number of units be x .Net income = .15*( x*10 )= 1.5X

Net income = units[price-variable cost] -fixed cost

1.5 x = X[ 10 -6] - 50000

1.5 X = 4X - 50000

4X -1.5X = 50000

   2.5X =50000

X = 50000/2.5

= 20000 units

Sales in units required to achieve a net income of 15 percent of sales = 20000 units