In: Accounting
Complete Stop Driving School charges $500 per student to prepare and administer written and driving tests. Variable costs of $150 per student include trainers' wages, study materials, and gasoline. Annual fixed costs of $140,000 include the training facility and fleet of cars.
1. |
For each of the following independent situations, calculate the contribution margin per unit and the breakeven point in units by first referring to the original data provided: |
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a. |
Breakeven point with no change in information. |
|
b. |
Decrease sales price to
$ 250$250 per student. |
|
c. |
Decrease variable costs to
$ 100$100 per student. |
|
d. |
Decrease fixed costs to
$ 122 comma 500$122,500. |
|
2. |
Compare the impact of changes in the sales price, variable costs, and fixed costs on the contribution margin per unit and the breakeven point in units. |
Requirement 1. For each of the following independent situations, calculate the contribution margin per unit and the breakeven point in units:
Begin by showing the formula for contribution margin per unit and then enter the amounts to calculate the contribution margin per unit for each situation. (Abbreviation used: CM = contribution margin.)
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= |
CM per unit |
Situation a. |
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= |
Situation b. |
- |
= |
Situation c. |
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= |
Situation d. |
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= |
Now select the labels to show the formula for breakeven point in units and then enter the amounts to calculate the breakeven point in units for each situation. (Complete all answer boxes. Abbreviation used: CM = contribution margin.)
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+ |
) / |
= |
Required sales in units |
Situation a. |
( |
+ |
) / |
= |
Situation b. |
( |
+ |
) / |
= |
Situation c. |
( |
+ |
) / |
= |
Situation d. |
( |
+ |
) / |
= |
Requirement 2. Compare the impact of changes in the sales price, variable costs, and fixed costs on the contribution margin per unit and the breakeven point in units.
First, compare the impact of changes in the sales price, variable costs, and fixed costs on the contribution margin per unit.
The contribution margin
▼
decreases
does not change
increases
when the sales price decreases. The contribution margin
▼
decreases
does not change
increases
when variable costs decrease. The contribution margin
▼
decreases
does not change
increases
when the fixed costs decrease.
Now, compare the impact of changes in the sales price, variable costs, and fixed costs on the breakeven point in units.
The breakeven point
▼
decreases
does not change
increases
when the sales price decreases. The breakeven point
▼
decreases
does not change
increases
when the variable costs decrease. The breakeven point
▼
decreases
does not change
increases
when fixed costs decrease.
Choose from any list or enter any number in the input fields and then continue to the next question.
1.
Situation | Selling price | Variable Cost | Contribution Margin per unit |
a | $ 500 | $ 150 | $ 350 |
b | $ 250 | $ 150 | $ 100 |
c | $ 500 | $ 100 | $ 400 |
d | $ 500 | $ 150 | $ 350 |
Contribution Margin per unit = Selling price - Variable cost per
unit
Situation | Fixed Costs | Contribution Margin per unit | Break Even (Units) |
a | $ 140,000 | $ 350 | 400 |
b | $ 140,000 | $ 100 | 1400 |
c | $ 140,000 | $ 400 | 350 |
d | $ 122,500 | $ 350 | 350 |
Break Even Point (units) = Fixed Costs / Contribution margin per unit
2.
when the sales price decreases. The contribution margin
Decreases
when variable costs decrease. The contribution margin
Increases
when the fixed costs decrease. The contribution margin
does not change
when the sales price decreases. The breakeven point
Increases, as denominator decreases
when the variable costs decrease. The breakeven point
Decreases, as denominator increases
when fixed costs decrease. The breakeven point
Decreases, as numerator decreases