Question

The budgets of four companies yield the following​ information:

The budgets of four companies yield the following​ information:

​(Click the icon to view the budget information for the four​ companies.)

Requirements

1.	Fill in the blanks for each company.
2.	Compute​ breakeven, in sales​ dollars, for each company. Which company has the lowest breakeven point in sales​ dollars? What causes the low breakeven​ point?

		Company
		Q	R	S	T
	Target sales. . . . . . . . . . . . . . . .	$680,000	$331,250	$171,875	$
	Variable expenses. . . . . . . . . .	170,000			270,000
	Fixed expenses. . . . . . . . . . . . .		156,000	88,000
	Operating income (loss). . . . . .	$150,000	$	$	$133,000
	Units sold. . . . . . . . . . . . . . . . .		125,000	11,000	18,000
	Contribution margin per unit. .	$6.25	$	$10.00	$35.00
	Contribution margin ratio. . . . .		0.80

Answer 1

1) Fixed Cost of Q = Contribution Margin - Operating Income

= 510,000 - 150,000

= $360,000

2) Unit sold of Q = Contribution Margin / Contribution Margin Per Unit

= 510,000/6.25

= 81,600 Units

3) Contribution margin ratio of Q = Contribution Margin/Total Sales = 510,000/680,000 = 0.75

4) Contribution Margin of R = Target Sales x Contribution Margin Ratio = 331,250 x 0.80 = $265,000

5) Variable Cost of R = Target Sales - Contribution Margin = 331,250 - 265,000 = $66,250

6) Operating Income of R = Contribution Margin - Fixed Cost = 265,000 - 156,000 = $109,000

7) Contribution Margin Per Unit of R = Contribution Margin / No. of Units sold = 265,000/125,000 = $2.12

8) Contribution Margin of S = Units sold x Contribution margin per unit = 11,000 x 10 = $110,000

9) Variable Cost of S = Target Sales - Contribution Margin = 171,875 - 110,000 = $61,875

10) Operating Income of S = Contribution Margin - Fixed Cost = 110,000 - 88,000 = $22,000

11) Contribution margin ratio of S = Contribution Margin/Total Sales = 110,000/171,875 = 0.64

12) Contribution Margin of T = Units sold x Contribution margin per unit = 18,000 x 35 = $630,000

13) Target Sales of T = Contribution Margin + Variable Expense = 630,000 + 270,000 = $900,000

14) Fixed Cost of T = Contribution Margin - Operating Income = 630,000 - 133,000 = $497,000

15) Contribution margin ratio of T = Contribution Margin/Total Sales = 630,000/900,000 = 0.70

Break Even in sales dollars = Fixed Cost/Contribution Margin Ratio

Based on attached working - Company S has the lowest Break even sales in dollars.

Reason for lowest breakeven of Company S is its lowest fixed cost among all companies