Ch_7_solutions

# Ch_7_solutions - (10 min S 7-1 a Sales price per passenger...

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(10 min.) S 7-1 a. Sales price per passenger……………………. \$ 60 Less: Variable cost per passenger…………. . (20 ) Contribution margin per passenger………… \$ 40 b. Contribution margin per passenger………… \$40 Divided by sales price per passenger………. ÷ 60 Contribution margin ratio……………………. . 66 .667 % c. Total contribution margin (10,000 × \$40)…. .. \$400,000 Less: Fixed expenses…………………………. . 275,000 Operating income………………………………. \$125,000 d. Total contribution margin (\$500,000 × 66.667%) …………………………. . \$333,335 Less: Fixed expenses…………………………. . 275,000 Operating income………………………………. \$ 58,335 (5 min.) S 7-2 The unit contribution margin tells managers how much income is earned on each unit of sales before considering fixed costs. Each sale contributes its unit contribution margin towards covering fixed costs and generating a profit. Therefore, if the number of dinner cruises sold increases by 500 and each sale generates \$40 of contribution margin, operating income will increase (or operating loss will decrease) by \$20,000 (= 500 passengers × \$40 per passenger). (5-10 min.) S 7-3 a. Sales revenue Variable expenses Fixed = Operating expenses income Sale price Units per unit × sold Variable cost Units Fixed = Operating per unit × sold expenses income (\$60 × Units sold) (\$20 × Units sold) \$275,000 = \$0 [(\$60 − \$20) × Units sold] \$275,000 = \$0 \$40 × Units sold = \$275,000 Units sold = 6,875 passengers b. Units sold = Fixed expenses + Operating income (to break even) Contribution margin per unit (passenger) = \$275,000 + 0 \$40* = 6,875 passengers *Contribution margin = \$60 sale \$20 variable expense per passenger price per passenger Proof: Sales revenue (6,875 × \$60)…. ............................ …. \$412,500 Variable expenses (6,875 × \$20)…. .................... ….. 137,500 Contribution margin(6,875 × \$40)…. .................. ….. 275,000 Fixed expenses…. .................................... …………. . (275,000 ) Operating income…. .................................. ……….… \$ 0

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(continued) S 7-3 c. Number of passengers to break even*……………. 6,875 Sales price per passenger…………………………. .. × \$60 Sales revenue to break even………………………. . \$412,500 * from parts a. and b. d. Sales in dollars = Fixed expenses + Operating income Contribution margin ratio = \$275,000 + \$0 0.66667 = \$412,500 (Rounded) (5 min.) S 7-4 Sales in units = Fixed expenses + Operating income Contribution margin per unit = \$275,000 + \$40,000 \$40 = 7,875 dinner cruise tickets Or, using the equation approach: Sales revenue Variable expenses Fixed = Operating expenses income Sale price Units per unit × sold Variable cost Units Fixed = Operating per unit × sold expenses income (\$60 × Units sold)
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Ch_7_solutions - (10 min S 7-1 a Sales price per passenger...

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