Week 3 worksheet ch

Topics: Variable cost, Contribution margin, Management accounting Pages: 3 (328 words) Published: March 7, 2015
Northenscold Company sells several products. Information of average revenue and costs are as follows:

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....
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