Question

Price, Variable Cost per Unit, Contribution Margin, Contribution Margin Ratio, Fixed Expense

For each of the following independent situations, calculate the amount(s) required.

Required:

1. At the break-even point, Jefferson Company sells 115,000 units and has fixed cost of $346,800. The variable cost per unit is $0.10. What price does Jefferson charge per unit? Note: Round to the nearest cent.
$

2. Sooner Industries charges a price of $116 and has fixed cost of $395,500. Next year, Sooner expects to sell 16,700 units and make operating income of $179,000. What is the variable cost per unit? What is the contribution margin ratio? Note: Round your variable cost per unit answer to the nearest cent. Enter the contribution margin ratio as a percentage, rounded to two decimal places.

Variable cost per unit	$
Contribution margin ratio		%

3. Last year, Jasper Company earned operating income of $22,500 with a contribution margin ratio of 0.25. Actual revenue was $225,000. Calculate the total fixed cost. Note: Round your answer to the nearest dollar, if required.
$

4. Laramie Company has variable cost ratio of 0.45. The fixed cost is $110,000 and 25,000 units are sold at break-even. What is the price? What is the variable cost per unit? The contribution margin per unit? Note : Do NOT round interim computations. Round answers to the nearest cent.

Price	$
Variable cost per unit	$
Contribution margin per unit	$

Answer 1

• Requirement 1

Sales – Variable cost – Fixed Cost = $ 0 at Break even level
(115000 units x price per unit) – (115000 units x $ 0.10 variable cost) - $ 346800 fixed cost = $ 0
115000 x price per unit – 11500 – 346800 = 0
115000 x price per unit = 346800 + 11500
price per unit = 358300 / 115000
Price per unit = $ 3.12 = Answer

• Requirement 2

A	Operating income	$179,000
B	Fixed cost	$395,500
C = A+B	Total contribution margin	$574,500
D = 16700 x $ 116	Sales revenue	$1,937,200
E = D - C	Variable cost total	$1,362,700
F = E/16700	Variable cost per unit	$81.60 = Answer
G = (C/D) x100	Contribution margin ratio	29.66%= Answer

• Requirement 3

A	Actual revenues	$225,000
B = A x 0.25	Contribution margin	$56,250
C	Operating Income	$22,500
D = B - C	Total Fixed Cost	$33,750 = Answer

• Requirement 4
  Let Price charged by $X per unit

Sales – Variable cost – Fixed Cost = $ 0 at Break even level
(25000 units x $X) – (25000 units x $X x 0.45) - $ 110000 = $ 0
25000X – 11250X – 110000 = 0
13750X = 110000
X = 110000/13750
X = $ 8

Answers:
Price = $ 8.00 per unit

Variable cost per unit = $ 8 x 0.45 = $ 3.60
Contribution margin per unit = 8 – 3.60 = $ 4.40