...much is going to be the new contributionmargin per haircut, the annual break-even point in number of haircuts.
On our evaluation, Andre requested to find the following information.
1. Find the contributionmargin per haircut.
ContributionMargins Definition
"Contributionmargin (or margins) refers to the amount of revenue per product that is available to "contribute" towards the fixed costs and the profit of the company. Since, for digital products, the variable costs are typically very small, or zero, most of the revenue earned from the sale of a product form the contributionmargin. Assuming the contributionmargin (unit price - unit variable cost) > 0, then the product is worth marketing, since the fixed costs are sunk. This also assumes the product does not cannibalize sales from another product in the product line, if so, the opportunity costs need to be considered" (Learnthat.com (2006)).
ContributionMargin= Unit Price Unit Variable Cost
2. Determine the annual break-even point, in number of haircuts.
Break Even Analysis Definition
"Break Even Analysis refers to the calculation to determine how much product a company must sell in order to break even on that product. It is an effective analysis to measure the impact of different marketing...

...statement is set using a contribution format. The contribution format centers on the idea that each unit sold provides a certain amount of contributionmargin that goes to covering fixed costs.
In 2004 expenses like distribution and transport (29,988) and the sales commissions (73,573) have been reclassified (contribution format) as variable selling costs on page 33 ([104]).
2. Why do you think cost of sales is included in the computation of contributionmargin on page 33?
Benetton’s cost of sales includes some fixed expenses but most of the expenses Benetton incurs are variable. The cost of sales is included in the computation of contributionmargin because the costs that go into creating the products that Benetton sells have a direct relationship with the production of the products. Because the manufacturing of Benetton’s products is outsourced to many different suppliers the majority of expenses are variable.
3. Perform two separate computations of Benetton’s break-even point in Euros. For the first computation, use data from 2003. For the second computation, use data from 2004. Why do the numbers that you computed differ from one another?
| |2003 | |2004 |
|General and administrative |464 | |436 |...

...has decreased. |
5. | Sales are $500,000 and variable costs are $350,000. What is the contributionmargin ratio? |
A) | 43%. |
B) | 30%. |
C) | 70%. |
D) | Cannot be determined because amounts are not expressed per unit. |
6. | Barcelona Bagpipes produces two models: Model 24 has sales of 500 units with a contributionmargin of $40 each; Model 26 has sales of 350 units with a contributionmargin of $50 each. If sales of Model 26 increase by 100 units, how much will profit change? |
A) | $5,000 increase. |
B) | $17,500 increase. |
C) | $22,500 increase. |
D) | $35,000 increase. |
7. | Which of the following would be the least controllable fixed costs? |
A) | Property taxes. |
B) | Rent. |
C) | Research and development. |
D) | Management training programs. |
8. | Which concept answers the following question: “If budgeted revenues are above breakeven and decline, how far can they fall before the break-even point is reached?” |
A) | Contributionmargin. |
B) | Relevant range of operations. |
C) | Target margin. |
D) | Margin of safety. |
9. | Fields Corporation has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Fields incurs $2,220,000 in fixed costs. The contributionmargin ratio for Sporting...

...Excel Assignment #2
Preparing a ContributionMargin Income Statement and Operating Leverage
Summer 2013
1. Assume that a company is budgeting to sell 2,500 units of a product at a selling price per unit of $32. The variable cost per unit is $26 and total fixed costs are $5,000.
REQUIRED
Prepare a contributionmargin income statement and calculate operating leverage.
2. Suppose the company is unsure exactly how many units they will sell. As such, their marketing department has provided a worst case scenario where sales would be 1,500 units and a best case scenario where sales would be 2,700 units. Assume that the selling price per unit, variable cost per unit and fixed costs will remain constant (per part 1).
REQUIRED
Prepare a contributionmargin income statement and calculate operating leverage for both the worst case scenario (sales of 1,500 units) and the best case scenario (sales of 2,700 units).
3. Suppose the company believes that 2,500 units is the most likely volume of sales. However, it is unsure at what selling price per unit it will be able to charge. The marketing department has provided a high estimate of $40 per unit and a low estimate of $30 per unit. Assume that variable costs per unit and fixed costs will remain constant (per part 1).
REQUIRED
Prepare a contributionmargin income statement and calculate...

...activity where:
A. total revenue equals total cost.
B. variable cost equals fixed cost.
C. total contributionmargin equals the sum of variable cost plus fixed cost.
D. sales revenue equals total variable cost.
E. profit is greater than zero.
3. The unit contributionmargin is calculated as the difference between:
A. selling price and fixed cost per unit.
B. selling price and variable cost per unit.
C. selling price and product cost per unit.
D. fixed cost per unit and variable cost per unit.
E. fixed cost per unit and product cost per unit.
4. Which of the following would produce the largest increase in the contributionmargin per unit?
A. A 7% increase in selling price.
B. A 15% decrease in selling price.
C. A 14% increase in variable cost.
D. A 17% decrease in fixed cost.
E. A 23% increase in the number of units sold.
5. Which of the following would take place if a company were able to reduce its variable cost per unit?
A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E
6. Which of the following would take place if a company experienced an increase in fixed costs?
A. Net income would increase.
B. The break-even point would increase.
C. The contributionmargin would increase.
D. The contributionmargin would decrease.
E. More than one of the above events would occur.
7. Assuming no change in sales volume, an...

...Total fixed expenses are $39,600 per month. Expected monthly sales are: Colonial, 1,800 units; Early American, 600 units. 2. The contributionmargin per chair for the Colonial model is: A) $51. B) $16. C) $35. D) $25. The answer is b. CM = P-V = $60 - $35 - $9 = $16.
Page 1
3. If the sales mix and sales units are as expected, the break-even in sales dollars is closest to: A) $132,000. B) $148,500. C) $143,000. D) $139,764. Price: Variable Costs:ContributionMargin: ContributionMargin Ratio: The answer is c. Colonial to Early American Sales Mix: 3:1 Weighted Average ContributionMargin Ratio: .75(.2667) +.25(.30)= .20 +.075=.275 PX = F/CMR = $39,600/.275 = $144,000 Weighted Average ContributionMargin: .75(16) + .25(24) = 12+6 = $18 X = F/CMU = $39,600/$18 = 2,200 units Colonial Sales Revenue: Early American Revenue: .75(2,200) = 1,650 x $60 = .25(2,200) = 550 x $80 = $99,000 44,000 $143,000 Colonial $60 -44 $16 26.67% Early American $80 -56 $24 30%
Use the following to answer questions 4-5: Southwest Industries produces a sports glove that sells for $15 per pair. Variable expenses are $8 per pair and fixed expenses are $35,000 annually. 4. The break-even point for Southwest industries is: A) 8,000 pairs. B) 5,000 pairs. C) 4,375 pairs. D) 2.333 pairs. The answer is b. X = F/(P-V) = $35,000/($15-$8) = 5,000
Page 2
5....

... P48 per unit
Total fixes costs P640,000 per annum
Units sold during the current year P25,000 units
A. Unit contributionmargin, contributionmargin ratio and variable cost ratio.
B. Breakeven point in units and in pesos.
C. Margin of safety in units and in pesos, and margin of safety ratio.
D. Profit Ratio
E. The amount of profit using the margin of safety
F. If sales increase by P300,000. How much would you expect profit to increase?
SOLUTIONS:
A. Units Unit Price Amount Rate
Sales 25,000 80.00 2,000,000 100%
Variable Costs 25,000 48.00 1,200,000 60%
ContributionMargin 25,000 P32.00 800,000 40%
Fixed costs 640,000
Profit before profit tax P160,000
UCM= P32.00 CMR= 40% VCR= 60%
B. BEP(units) = 640,000/32 = 20,000 units
BPR(pesos)= 640/000/40%= P1,600,000
C. Amount Units Rate
Actual Sales P2,000,000 25,000 100%
Break Even sales 1,600,000 20,000 80%
Margin of Safety P400,000 P5,000 20%
D. Profit= P2,000,000 x 8%= P160,000
E. NPR= 40% x 20% = 8%
F. Increase in CM(increase in profit)= P300,000 x 40%= P120,000
2. Bridal Shoppe sells wedding dresses. The cost of each dress is comprised of the following: Selling price of P1,000 and variable (flexible) costs of P400. Total fixed (capacity-related) costs for Bridal Shoppe are P90,000.
A. What is...

...is Addison Corporation's contribution format income statement for last month:
Sales $1,000,000
Less: Variable Expenses $ 700,000
ContributionMargin $ 300,000
Less: Fixed Expenses $ 180,000
Operating Income $ 120,000
The company has no beginning or ending inventories. A total of 20,000 units were produced and sold last month.
What is the company's margin of safety in dollars?
$400 000
10 points
Question 2
1.
The following is Addison Corporation's contribution format income statement for last month:
Sales $1,000,000
Less: Variable Expenses $ 700,000
ContributionMargin $ 300,000
Less: Fixed Expenses $ 180,000
Operating Income $ 120,000
The company has no beginning or ending inventories. A total of 20,000 units were produced and sold last month.
What is the company's contributionmargin ratio?
30%
10 points
Question 3
1.
The following is last month's contribution format income statement:
Sales (10,000 Units) $1,200,000
Less: Variable Expenses $ 800,000
ContributionMargin $ 400,000
Less: Fixed Expenses $ 240,000
Operating Income $ 160,000 ...