McCartney Co developed the following information for its pro

McCartney Co. developed the following information for its product:

            Sales price per unit                             $100
            Variable cost per unit                          $ 70
            Total fixed costs                                $1,500,000

Answer the following independent questions and show computations to support your answers.

The contribution margin per unit is $.  

The contribution margin ratio is %.

units must be sold to break even.

McCartney Co. will recognize a net income of $ if it sells 60,000 units.  

If the company is currently selling 55,000 units, its margin of safety ratio would be %.

Refer to the original data: if the company plans to spend an additional $200,000 on advertising, how many units must it sell to earn a net income of $700,000 ?

Refer to the original data: The company is considering a 10% increase in sales price. What will be the new breakeven point in units ?

Solution

a) Contribution margin per unit = 100-70 = 30 per unit

b) Contribution margin ratio = 30*100/100 = 30%

c) Units must be sold to break even = 1500000/30 = 50000 Units

d) Net income = (60000*30)-1500000 = $300000

e) Margin of safety = 500000*100/5500000 = 9.09%

f) Required unit sales = (1500000+200000+700000)/30 = 80000 Units

g) New Break even point = 1500000/(110-70) = 37500 Units