Question

In: Accounting

Complete Stop Driving School charges $500 per student to prepare and administer written and driving tests....

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:

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.)

-

=

CM per unit

Situation a.

-

=

Situation b.

-

=

Situation c.

-

=

Situation d.

-

=

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.)

(

+

) /

=

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.

Solutions

Expert Solution

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


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