Concept explainers
(a)
Contribution Margin:
The margin of profit which is computed after considering the variable cost only and not the fixed costis known as contribution. In other words, it means the contribution made by selling the product after covering its variable cost to the company.
The contribution margin ratio.
Answer to Problem 21E
The contribution margin ratio is
Explanation of Solution
Contribution Margin Income Statement:
Particulars | Amount |
Revenue | |
Total variable cost |
|
Total Contribution Margin |
(b)
Concept introduction:
Breakeven Point:
The level of sales where the company is neither on profit nor loss is termed as breakeven point. In other words, that level of sales at which the fixed cost of the business is recovered.
To compute:
The breakeven point if the fixed cost is
Answer to Problem 21E
The breakeven point is
Explanation of Solution
Particulars | Amount |
Revenue | |
Total variable cost |
|
Total Contribution Margin |
The contribution margin ratio is
The break-even point in units is calculated as:
(c)
Concept introduction:
Target Profit:
The target profit is that profit which a company decides to achieve and this analysis helps in determinig the level of sales by which this target can be achieved.
The total sales to achieve target profit of
Answer to Problem 21E
The target sale point is
Explanation of Solution
Contribution Margin Income Statement:
Particulars | Amount |
Revenue | |
Total variable cost |
|
Total Contribution Margin |
The contribution margin ratio is
The total sales for achieving the target profit are calculated as:
(d)
Concept introduction:
Target Profit:
The target profit is that profit which a company decides to achieve and this analysis helps in determinig the level of sales by which this target can be achieved.
The sale revenue from each product to achieve target profit of
Answer to Problem 21E
The sale revenue from each product is divided as per their percentage ratio product mix which amounts to
Explanation of Solution
The total sales for achieving the target profit are calculated as:
The share of sales of Thermos A will be
The share of sales of Thermos B will be
The share of sales of Thermos C will be
Want to see more full solutions like this?
Chapter 6 Solutions
Managerial Accounting
- Suppose you are analyzing a firm that is successfully executing a strategy that differentiates its products from those of its competitors. Because of this strategy, you project that next year the firm will generate 6.0% revenue growth from price increases and 3.0% revenue growth from sales volume increases. Assume that the firms production cost structure involves strictly variable costs. (That is, the cost to produce each unit of product remains the same.) Should you project that the firms gross profit will increase next year? If you project that the gross profit will increase, is the increase a result of volume growth, price growth, or both? Should you project that the firms gross profit margin (gross profit divided by sales) will increase next year? If you project that the gross profit margin will increase, is the increase a result of volume growth, price growth, or both?arrow_forwardA firm has the following total avenue and total cost schedules TR=$2Q TC=$4,000 +$1.5Q a. what is the break- even level of output? what is the level of profit at sales of 9,000 units b. as the result of a major technological breakthrough, the total cost sales is changed to: TC= $6,000 + $0.5Q What is the break-even level of output? what is the level of profit at sales of 9,000 units?arrow_forwardREQUIRED Study the information given below and answer the following questions independently. As far as possible, use the expanded contribution margin model to present your answers. Calculate the break-even Calculate the sales volume required to achieve an operating profit of R2 484 Suppose the management team of Timera Enterprises is considering a decrease of R18 per unit in the selling price of the product, with the expectation that this would increase the sales volume by 12%. Is this a good idea? Motivate your answer with the relevant calculations. *Determine the selling price per unit (expressed to the nearest cent) that will enable Timera Enterprises to break even. INFORMATION Timera Enterprises produces a single product. The following budgeted information for 2022 is available: Expected production and sales 45…arrow_forward
- Assume a company is considering adding a new product line with the following estimated cost and revenue data: Annual sales Selling price per unit Variable manufacturing costs per unit Variable selling costs per unit Incremental fixed manufacturing costs Incremental fixed selling costs Allocated common fixed administrative costs $ $ $ 6,000 units 190 140 15 $66,000 per year $42,000 per year $48,000 per year If the new product line is added, the company expects that it will increase the sales of complementary products, thereby generating $36,000 in incremental contribution margin from those products. What is the lowest selling price per unit that could be charged for the new product line and still allow the company to break-even?arrow_forwardCPL contemplates a change in technology that would reduce fixed costs from P 800,000 to P 700,000. However, the ratio of variable costs to sales will increase from 68% to 80%. What will happen to breakeven level of revenues? A. Decrease by P 301,470.50 B. Decrease by P 500,000 C. Decrease by P 1,812,500 D. Increase by P 1,000,000 Topic: Cost Volume Profitarrow_forwardvictoria company produces a single product. last year's income statement is as follows: sales(29000 units) br 1218000 less: variable costs : 812000, contribution margin 406000 less: fixed expenses 300000, net income 106000. required 1=compute the break even post in units and sales br ? 2=what was the margin of safety for victoria last year? 3=suppose that victoria company is considering an investment in new technology that will increase fixed cost by br 250000 per year but will lower variable costs to 45%of sales? 4=units sold will remain unchanged. prepare a budgeted income statement assuming that victoria makes this investment . what is the new break even point in units and sales br, assuming that the investment is made?arrow_forward
- Consider the following cost and pricing data of ABC Corp. on its Product X: Price: P120.00.per unit Profit Contribution: P90.00 Proposed additional Cost: P3 per unit (for quality improvement) Current Profits: P2.4 million Sales: 100,000 units. Assuming that average variable costs are constant at all output levels, find ABC Corp.’s total cost function before the proposed change.Calculate the total cost function if the quality improvement is implemented.Calculate ABC Corp.’s break-even output before and after the change, assuming it cannot increase its price.Calculate the increase in sales that would be necessary with the quality improvement to increase profits to P2.7 million.arrow_forwardAPPLY THE CONCEPTS: Effect of Changes to Sales Price, Variable Costs and Fixed Costs Now consider each of the following scenarios for Gordon Products. Calculate the contribution margin (CM) per unit, rounded to nearest dollar, and the new break-even point in units, rounded to the nearest whole unit, for each scenario separately. Scenario 1 Scenario 2 Scenario 3 Gordon will dispose of a machine in the factory. The depreciation on that equipment is $500 per month. After some extensive market research, Gordon has determined that a sales price increase of $2 per unit will not affect the sales volume and will be effective immediately. Gordon has been experiencing quality problems with a materials supplier. Changing suppliers will improve the quality of the product but will cause direct materials costs to increase by $1 per unit. CM per unit: $fill in the blank e2f800fbc041002_1 CM per unit: $fill in the blank e2f800fbc041002_2 CM per unit: $fill in the blank e2f800fbc041002_3…arrow_forwardGroove auto is considering the introduction of a new model of wireless speakers with the following price and cost characteristics.sales price 443.00 per unit.variable cost 203.00 per unit.fixed costs 715,000assume that the projected number of units sold for the year is 4 400.consider requirement b,c,d independent from each other. [a] What will the operating profit be? [b] What is the impact of operating profit if the sales price decreases by twenty percent increases by ten percent? [c] What is the impact on operating profit A veritable cost per unit decrease by ten percent increase by twenty? [d] Suppose that fixed costs for the year are 20% lower. Than projected and bearable costs per unit are 10% higher than projected. What impact will these costs changes have on operating profit for the year Kindly solve b c and darrow_forward
- Bloom Company predicts it will incur fixed costs of $255,000 and earn income of $427,500 in the next period. Its expected contribution margin ratio is 65%. 1. Compute the amount of expected total dollar sales. 2. Compute the amount of expected total variable costs. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the amount of expected total dollar sales. Dollar Sales Numerator: Denominator: Total Dollar Sales %3D Total dollar sales %3D Required 1 Required 2 >arrow_forwardJuniper Corporation makes three models of insulated thermos. Juniper has $307,000 in total revenue and total variable costs of $202, 620. Its sales mix is given below: Percentage of Total Sales Thermos A 30% Thermos B 40 Thermos C 30 Suppose Juniper has improved its manufacturing process and expects total variable costs to decrease by 20 percent. The company expects sales revenue to remain stable at $307,000. Required: Calculate the new weighted - average contribution margin ratio. Determine total sales that Juniper needs to break even if fixed costs after the manufacturing improvements are $52,000. Determine the total sales revenue that Juniper must generate to earn a profit of $87,570. Assume fixed costs after the manufacturing improvements are $52,000 . Determine the sales revenue from each product needed to generate a profit of $87, 570. Assume fixed costs after the manufacturing improvements are $52, 000 .arrow_forwardBloom Company management predicts that it will incur fixed costs of $267,000 and earn pretax income of $353,100 in the next period. Its expected contribution margin ratio is 53%. Required: 1. Compute the amount of total dollar sales. 2. Compute the amount of total variable costs. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the amount of total dollar sales. Dollar Sales Choose Numerator: / Choose Denominator: = 1 of 5 F8 Next > F9 18 F10 F11 F12 Fn Lock 3:25 PM 6/16/2022 Insertarrow_forward
- Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning