Question 8 12 marks A company had the following results for

Question 8 (12 marks) A company had the following results for this year: Sales (15,000 units) Variable expenses Fixed expenses Net profit $300,000 180,000 80,000 $40,000 Answer the following questions independently. (a) What are the company\'s breakeven sales in dollars? (2 marks) (b) What are the company\'s breakeven sales in units? (2 marks) (c) What is the company\'s contribution margin in dollars? (2 marks) (d) What is the company\'s contribution margin ratio? (2 marks) (e) How many additional units must be sold to increase net profit from the current $40,000 to $100,000? (4 marks)

Solution

a) Break even Sales in dollars $       2,00,000 b) Break even Sales in units               10,000 c) Contribution Margin in dollars $       1,20,000 d) Contribution Margin Ratio 40% e) Addiitonal units to be sold                 7,500 Working: a. Variable Costing Income Statement Per Unit Total Sales $          20 $       3,00,000 Variable Expense $          12 $       1,80,000 Contribution margin $             8 $       1,20,000 Fixed Expense $           80,000 Net profit $           40,000 b. CM (Contribution Margin) Ratio = Contribution Margin/Sales = $       1,20,000 / $ 3,00,000 = 40% c. Break even sales in dollars = Fixed Expense/ CM ratio = $           80,000 / 40% = $       2,00,000 d. Break even sales in units = Fixed Expense/ CM per unit = $           80,000 / $               8 =               10,000 e. Fixed Costs $           80,000 Target Net Profit $       1,00,000 Target Contribuution Margin $       1,80,000 Contribution margin Per Units $                     8 Required Sales Unit               22,500 Existing sales units               15,000 Required Additional Sales units                 7,500