Question

Woody Shoppe sells wedding dresses. The cost of each dress is comprised of the following: Selling price of $1,000 and variable (flexible) costs of $400. Total fixed (capacity-related) costs for Wedds Shoppe are $90,000.

1) What is the contribution margin per dress?

2) What is the Woody Shoppe’s total profit when 200 dresses are sold?

3) How many dresses must Wedds Shoppe sell to reach the breakeven point?

4)How many dresses must Wedds Shoppe sell to yield a profit of $60,000?

Answer 1

Question 1

Answer---------Contribution per unit = $600

Working

A	Sales price per unit	$               1,000.00
B	Variable cost per unit	$                   400.00
C=A-B	Contribution margin per unit	$                   600.00

.

Question 2

Answer---------$30,000

Working

Income Statement
Sales revenue ($1000 x 200)	$    200,000.00
Variable cost ($400 x 200)	$       80,000.00
Contribution margin	$    120,000.00
Fixed cost	$       90,000.00
Operating income	$       30,000.00

.

Question 3

Answer---------150 Dresses

Working

A	Sales price per unit	$               1,000.00
B	Variable cost per unit	$                   400.00
C=A-B	Contribution margin per unit	$                   600.00
D	Fixed cost	$             90,000.00
E=D/C	Break-even units	150

.

Question 4

Answer---------250 dresses

Working

A	Sales price per unit	$               1,000.00
B	Variable cost per unit	$                   400.00
C=A-B	Contribution margin per unit	$                   600.00
D	Fixed cost+ desired profit	$           150,000.00
E=D/C	Units to sell to earn $60000 profit	250