Selling price per unit $20.00 Variable costs per unit: Direct materials $4.00 Direct manufacturing labor $1.60 Manufacturing overhead $0.40 Selling costs $2.00 Annual fixed costs $96,000
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: Fixed Costs = 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
2. 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
c. 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
b. Margin of safety in units
c. Margin of safety in revenues
d. Estimated income or loss (indicate which)
Answer RSE Corporation
a. Expected profit @ 250 units = $1,050 Degree of