Chapter_5 - Exercise55(20minutes) 1.

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Exercise 5-5  (20 minutes) 1. The equation method yields the break-even point in unit sales, Q, as  follows: Sales = Variable expenses + Fixed expenses + Profits $8Q = $6Q + $5,500 + $0 $2Q = $5,500 Q = $5,500 ÷ $2 per basket Q = 2,750 baskets 2. The equation method can be used to compute the break-even point in  sales dollars, X, as follows: Per  Unit Percent of  Sales Sales price. ..................... $8 100% Variable expenses. .........   6      75     % Contribution margin. ........ $2   25     % Sales = Variable expenses + Fixed expenses + Profits X = 0.75X + $5,500 + $0 0.25X = $5,500 X = $5,500 ÷ 0.25 X = $22,000 3. The contribution margin method gives an answer that is identical to the  equation method for the break-even point in unit sales: Break-even point in units sold = Fixed expenses ÷ Unit  CM = $5,500 ÷ $2 per basket = 2,750 baskets 4. The contribution margin method also gives an answer that is identical to  the equation method for the break-even point in dollar sales: Break-even point in sales dollars = Fixed expenses ÷ CM ratio = $5,500 ÷ 0.25 =$22,000
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Exercise 5-9  (20 minutes) 1. The overall contribution margin ratio can be computed as follows: Total contribution margin Overall CM ratio =  Total sales $120,000  = 80% $150,000 2. The overall break-even point in sales dollars can be computed as  follows: Total fixed expenses Overall break-even =  Overall CM ratio $90,000   =   = $112,500 80% 3. To construct the required income statement, we must first determine the  relative sales mix for the two products: Predator Runway Total Original dollar sales. ...... $100,000 $50,000 $150,000 Percent of total. ............. 67% 33% 100% Sales at break-even. ...... $75,000 $37,500 $112,500 Predator Runway Total Sales. ............................ $75,000 $37,500 $112,500 Variable expenses*. .......   18,750           3,750         22,500     Contribution margin. ...... $56,250 $33,750 90,000 Fixed expenses. ............     90,000     Net operating income. ... $                    0    *Predator variable expenses: ($75,000/$100,000) × $25,000 = $18,750    Runway variable expenses: ($37,500/$50,000) × $5,000 = $3,750 
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This note was uploaded on 11/11/2011 for the course ACC 202 taught by Professor Sue during the Summer '10 term at Michigan State University.

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Chapter_5 - Exercise55(20minutes) 1.

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