Homework SourseTest Quiz CVP Chapter 20 SolutionSolution 1 Selling price pe
Solution
Solution 1:
Selling price per flag = $25
Variable cost per flag = $10
Contribution margin per flag = $25 - $10 = $15 per flag
Fixed cost = $900,000
Nos of flag to be sold to breakeven = Fixed cost / Contribution margin per unit = $900,000 / $15 = 60000 flag
Solution 2:
Target net operating income = $45,000
Target contribution margin = $900,000 + $45,000 = $945,000
contribution margin ratio = $15 / $25 = 60%
Dollar sales needed to earn target net operating income = Target contribution / Contribution margin ratio
= $945,000 / 60% = $1,575,000
Solution 3:
Solution 4:
New fixed costs = $900,000 + $900,000*30% = $1,170,000
New variable cost per unit = $10 + $2.50 = $12.50
New contribution margin per unit = $25 - $12.50 = $12.50
At breakeven point net operating income is 0
Let breakeven sales units is X
Now
$12.50 X - $1,170,000 = 0
$12.50 X = $1,170,000
X = 93600 units
Breakeven sales in dollar = 93600 * $25 = $2,340,000
Company should do expansion if and only if operating income after expansion is higher than operating income before expansion.
| White Company | |
| Contribution margin income statement | |
| Year ended december 31, 2018 | |
| Particulars | Amount |
| Sales Revenue | $1,425,000.00 |
| Variable costs | $570,000.00 |
| Contribution margin | $855,000.00 |
| Fixed costs | $900,000.00 |
| Operating income (Loss) | -$45,000.00 |
