Northenscold Company sells several products. Information of average revenue and costs are as follows:
Selling price per unit
Variable costs per unit:
Direct manufacturing labor
Annual fixed costs
1. Calculate the contribution margin per unit.
CM= $20 - $4 - $1.60 - $0.40 - $2 = $12
Contribution Margin Ratio = CM/Selling Price =12/20=0.6
Thus, the breakeven point in total sales dollars is:
= 96000/0.6 = $160,000 Contribution Margin Ratio
2. Calculate the number of units Northenscold’s must sell each year to break even.
FC/CM 96000/12 =8000units
3. Calculate the number of units Northenscold’s must sell to yield a profit of $144,000.
(FC+ Profits)/CM = 96000+144000/12 = 20000 units
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. A. What is the contribution margin per phone?
CM per phone = $100 - $60 = $40
B. What is the breakeven point in phones?
Breakeven in phones FC/CM = 3750/40
Breakeven Point = 94 phones
How many phones must be sold to earn a targeted profit of $7,500? (FC+ Profits)/CM = (3750+7500)/40 = 281.25 phones
To achieve target profit: Must sell 282 phones
RSE Corporation sells its product for $10 per unit. Its variable cost is $3 per unit, and total fixed costs are $700. Assuming next period’s estimated sales are 250 units and that 250 units is within the relevant range, calculate the following amounts: a.
Degree of operating leverage
Margin of safety in units
Margin of safety in revenues
Estimated income or loss (indicate which)
Answer RSE Corporation
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