Question

Boards Inc. fabricates skateboards that the company sells for $ 37.50 each. Fixed costs for the last 12 months equaled $4,800. For the same period variable cost per unit equaled $22.50. Use the unit variable cost and sales price to calculate the unit contribution margin: 9120 Calculate the breakeven sales volume. BLANK-2 Calculate the sales volume necessary to produce a target Net Income of $3,000 per month. BLANK-3 The skateboards are manufactured in an old factory that relies heavily on worker labor. The company is considering the construction of a new automated plant that would increase fixed costs by $ 4,320 per month, but decrease the variable cost per board by $ 8.50. What would the fixed costs and unit variable costs be under the proposal. Use the unit variable cost and sales price to calculate the unit contribution margin: Fixed Cost BLANK-4 Variable cost per unit BLANK-5 Contribution Margin per unit BLANK-6 Compute the breakeven under the new proposal. BLANK-7 Prepare comparative Contribution Margin Income Statements for the current and proposed manufacturing processes assuming the sales volume is 480 units per month. Current Process Sales Revenue BLANK-8 Variable Costs BLANK-9 Contribution Margin BLANK-10 Fixed Costs BLANK-11 Net Income BLANK-12 Proposed New Process Sales Revenue BLANK-13 Variable Costs BLANK-14 Contribution Margin BLANK-15 Fixed Costs BLANK-16 Net Income BLANK-17 If the company is expected to sell 480 units a month, should they build the new factory? Yes or No BLANK-18

Answer 1

Unit Contribution Margin = Unit Selling price – Variable cost

= 37.50 – 22.50

= $15 per unit

CM Ratio = 15/37.5

= 40%

Break even point in skateboards = Fixed costs/CM per unit

= 4800/15

= 320 skateboards

Sales volume = (Desired Income + Fixed costs)/Contribution Margin per unit

= (3000+4800)/15

= 520 skateboards

Unit variable cost under new proposal = 22.50-8.50 = $14 per unit

Fixed costs = 4800+4320 = $9120

Unit contribution Margin = 37.50-14 = $23.50

Break even point = 9120/23.50

= 388.09 units

	Current	Proposed
Sales Revenue	18,000	18,000
Less: Variable costs	10,800	6,720
Contribution Margin	7,200	11,280
Less: Fixed costs	4,800	9,120
Net Income	2,400	2,160
NO, should not build