and permanents at an average price of $30. During the month, fixed costs were $16,800 and variable costs were 75% of sales. Instructions: (a) Determine the contribution margin in dollars, per unit and as a ratio. (b) Using the contribution margin technique, compute the break-even point in dollars and in units. (c) Compute the margin of safety in dollars and as a ratio. Exercise 6-5 Carey Company had sales in 2016 of $1,560,000 on 60,000 units. Variable costs totaled $900,000 and fixed costs totaled $500,000. A new raw material is available the will decrease the variable costs per unit by 20% (or $3). However, to process the new raw material, fixed operating costs will increase by $100,000. Management feels that one-half of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction will result in a 5% increase in the number of units sold. Instructions: Prepare a projected CVP income statement for 2017 (a) assuming the changes have not been made, and (b) assuming that changes are made as described. Exercise 6-7 PDQ Repairs has 200 auto maintenance service outlets nationwide. It performs primarily two lines of service: oil changes and brake repair. Oil change -related services represents 70% of its sales and provide a contribution margin ratio of 20%. Brake repair represents 30% of its sales and provide a 40% contribution margin ratio. The company’s fixed costs are $15,600,000(that is $78,000 per service outlet). Instructions: (a) Calculate the dollar amount of each type of service that the company must provide in order to break even. (b) The company has a desired net income of $52.000 per service outlet. What is the dollar amount of each type of service that must be performed by each service outlet to meet its target net income per outlet?
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- Fall '16
- Contribution Margin, Contribution Margin Ratio, Carey Company