Chp 6 additional solutions - EXERCISE 6-2 (a) =...

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EXERCISE 6-2 (a) Contribution margin in dollars: Sales = 3,500 X $30 =$105,000 Variable costs = $105,000 X .8 = 84,000 Contribution margin $ 21,000 Contribution margin per unit: $30 – $24 ($30 X 80%) = $6. Contribution margin ratio: $6 ÷ $30 = 20%. (b) Break-even sales in dollars: $16,800 20% = $84,000. Break-even sales in units: $16,800 $6 = 2,800. (c) Margin of safety in dollars: $105,000 – $84,000 = $21,000. Margin of safety ratio: $21,000 ÷ $105,000 = 20%. EXERCISE 6-3 Current selling price = $300,000 ÷ 5,000 units Current selling price = $60 1. Increase selling price to $66 ($60 X 110%). Net income = $330,000* – $210,000 – $70,000 = $50,000. *($66 X 5,000) 2. Reduce variable costs to 58% of sales. Net income = $300,000 – $174,000** – $70,000 = $56,000. **($300,000 X .58) 3. Reduce fixed costs to $50,000 ($70,000 – $20,000). Net income = $300,000 – $210,000 – $50,000 = $40,000. Alternative 2, decreasing variable costs, will produce the highest net income.
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EXERCISE 6-6 Sales Mix Percentag e Contribution Margin Per Unit Weighted- Average Contribution Margin Lawnmowers Weed- trimmers Chainsaws 30% 50% 20% $30 $20 $40 $ 9 $10 $ 8 $27 Total break-even sales in units = $4,600,000 ÷ $27 = 170,370
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This note was uploaded on 03/30/2008 for the course ACCOUNTING 281 taught by Professor English during the Spring '08 term at Edgewood College-Madison.

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Chp 6 additional solutions - EXERCISE 6-2 (a) =...

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