Question

Promotion Industries manufacturers license plates for automobiles. The license plates sell for $10.50 each. During 2008, Miller sold 750,000 plates incurring total variable costs of $1,462,500 and fixed costs of $3,268,720.

         

          (a) Determine the contribution margin per unit.

          (b) Determine the breakeven point in units for 2008.

          (c) Determine the amount of profit earned in 2008.

          (d) Determine the breakeven point in units for 2009, assuming variable costs increase by 20% and fixed costs remain unchanged

Answer 1

a) Calculation of contribution margin per unit:
Variable cost per unit= variable cost/number of plates
= 1462500/750000= $1.95
Contribution= selling price- Variable cost per unit
= 10.50-1.95=8.55
Contribution margin per unit is $8.55
b) Calculation of break even point in units:
Break even sale in units= Fixed cost/ contribution per unit
= 3268720/8.55= 382306.43 units
Break even point in unit sales= 382306.43 units
c) Calculation of profit:
Particulars	Total
Sales (750000*10.50)	7875000
Less: Variable Cost	1462500
Contri bution(Sales- variable cost)	6412500
Less:Fixed Cost	3268720
Net operating income	3143780
Profit is $3143780
d) Calculation of break even point of 2009:
Variable cost per unit= 1.95*1.2=2.34
Contribution= selling price- Variable cost per unit
= 10.50-2.34=8.16
Contribution margin per unit is $8.16
Break even sale in units= Fixed cost/ contribution per unit
= 3268720/8.16= 400578.43 units
Break even point in unit sales= 400578.43 units