$ _______________

c.

$ _______________ $ _______________ # _______________

d. e. f.

# _______________

Answer: a. b. c. d. e. f. Contribution margin per unit is $30 – $17 = $13 $68,000 x 2 = $136,000 $40,000 Contribution margin of $13 x 10 units = $130 Fixed costs of $40,000 / Contribution margin per unit $13 = 3,077 units (Fixed costs of $40,000 + Profits $20,000) / CM per unit $13 = 4,616 units

1

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2.

Blankinship, Inc., sells a single product. The company's most recent income statement is given below. Sales Less variable expenses Contribution margin Less fixed expenses Net income Required: a. b. c. d. Contribution margin ratio is Breakeven point in total sales dollars is To achieve $40,000 in net income, sales must total If sales increase by $50,000, net income will increase by __________ % $ _______________ $ _______________ $ _______________ $200,000 (120,000) 80,000 (50,000) $ 30,000

Answer: a. b. c. d. Contribution margin ratio is $80,000 / $200,000 = 40% Fixed costs $50,000 / 0.40 CM% = $125,000 in sales [Fixed costs $50,000 + Net income $40,000] / 0.40 CM% = $225,000 in sales $50,000 x 0.40 CM% = $20,000 increase in net income

3.

In 2004, Grant Company has sales of $800,000, variable costs of $200,000, and fixed costs of $300,000. In 2005, the company expects annual property taxes to decrease by $15,000. Required: a. Calculate operating income and the breakeven point for 2004. b. Calculate the breakeven point for 2005.

Answer: a.

In 2004, operating income is $800,000 sales revenue – $200,000 variable costs – $300,000 fixed costs = $300,000. The breakeven point for 2004 is $400,000 in total sales dollars. $600,000 CM / $800,000 sales revenue = 0.75 CM ratio. $300,000 total fixed costs / 0.75 CM ratio = $400,000 in total sales to break even.

b.

The breakeven point for 2005 is $380,000 in total sales dollars. $300,000 fixed costs – $15,000 reduction in property taxes = $285,000 estimated fixed costs for 2005. $285,000 total fixed costs / 75% CM ratio = $380,000 in total sales to break even. 2

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4.

Berhannan’s Cellular sells phones for $100. The unit variable cost per phone is $50 plus a selling commission of 10%. Fixed manufacturing costs total $1,250 per month, while fixed selling and administrative costs total $2,500. Required: a. What is the contribution margin per phone? b. What is the breakeven point in phones? c. How many phones must be sold to earn pretax income of $7,500?

Answer: a. CM per phone = $100 – $50 – 0.1($100) = $40 b. N = Breakeven in phones $100N – $50N – $10N – $1,250 – $2,500 = 0 $40N – $3,750 = 0 N = $3,750 / $40 = 93.75 phones Breakeven is 94 phones c. N = Phones to be sold $100N – $50N – $10N – $1,250 – $2,500 = $7,500 $40N = $11,250 N = $11,250 / $40 = 281.25 phones 282 phones must be sold

5

Alex Miller, Inc., sells car batteries to service stations for an average of $30 each. The variable cost of each battery is $20 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the company total $8,000. Required: a. b. c. d. What is the breakeven point in batteries? What is the margin of safety,...