CVP analysis Current operating income for Bay Area Cycles Co

CVP analysis Current operating income for Bay Area Cycles Co. is $70,000. Selling price per unit is $100, the contribution margin is 35% and fixed expense is $280,000.

Required: Calculate Bay Area Cycles per unit variable expense and contribution margin. How many units are currently being sold.

Solution

contribution margin ratio=contribution margin/Sales

Hence contribution margin=0.35*100=$35

contribution margin=Sales-Variable expense

Variable expense=(100-35)=$65

contribution margin-Fixed cost=Current operating income

Hence total contribution margin=(70,000+280,000)=$350,000

Hence units sold=($350,000/35)=10,000units.