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

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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 units Sales Mix Percentage Total Break-even Sales in Units Sales Units Needed Per Product Lawnmowers Weed- trimmers Chainsaws
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