Question

1. Profitability Analysis
   Assume a local Cost Cutters provides cuts, perms, and hairstyling services. Annual fixed costs are $120,000, and variable costs are 40 percent of sales revenue. Last year's revenues totaled $250,000.
   
   (a) Determine its break-even point in sales dollars.
   $ Answer
   
   (b) Determine last year's margin of safety in sales dollars.
   $ Answer
   
   (c) Determine the sales volume required for an annual profit of $80,000.
2. Multiple Product Break-Even Analysis
   Presented is information for Stafford Company's three products.

	A	B	C
Unit selling price	$7	$9	$7
Unit variable costs	(4)	(5)	(1)
Unit contribution margin	$3	$4	$6

With monthly fixed costs of $306,000, the company sells two units of A for each unit of B and three units of B for each unit of C.

Determine the unit sales of product A at the monthly break-even point.
Answer units

3. Kopi Company produces dog cages that are sold for $45 per unit. The company produced and sold 5,000 dog cages during July 2017. There were no beginning or ending inventories. Variable and fixed costs follow.

Variable Costs per Unit				Fixed Costs per Month
Manufacturing:				Manufacturing overhead				$42,000
Direct materials		$10		Selling and administrative				18,000
Direct labor		2		Total				$60,000
Manufacturing overhead		5	$17
Selling and administrative			5
Total			$22

Required
Prepare a contribution income statement for July.

Do not use any negative signs with your answers.

Kopi Company
Contribution Income Statement
For the Month of July 2017
Sales		Answer
Less variable costs
Direct materials	Answer
Direct labor	Answer
Manufacturing overhead	Answer
Selling and administrative	Answer	Answer
Contribution margin		Answer
Less fixed cost:
Manufacturing overhead	Answer
Selling and administrative	Answer	Answer
Profit		Answer

Answer 1

Solution to the First Question

Contribution margin ratio

Contribution margin ratio = 100% - Variable cost ratio

= 100% - 40%

= 60%

(a)-The break-even point in sales dollars

The break-even point in sales dollars = Total fixed costs / Contribution margin ratio

= $120,000 / 0.60

= $200,000

(b)-Last year's margin of safety in sales dollars

Last year's margin of safety in sales dollars = Actual sales – Break-even sales

= $250,000 - $200,000

= $50,000

(c)-The sales volume required for an annual profit of $80,000

The sales volume required for an annual profit of $80,000 = [Total fixed costs + Desired profit] / Contribution margin ratio

= [$120,000 + $80,000] / 0.60

= $200,000 / 0.60

= $333,333.33