60 contribution margin 40000 8 40 fixed expenses

60%
Contribution Margin
$40,000 $8 40%
Fixed expenses
12,000
Operating income
$28,000
1a) Total contribution margin is $40,000.
1b) Per unit contribution margin is $8.
1c) Operating income is $28,000.
1d) Units sold = Total sales / sale price = $100,000 / 20 = 5,000 Units
Req. 2
2a.
Breakeven in units =
Fixed expenses
Contribution margin per unit
= $12,000
$8
= 1,500 units
2b.
Breakeven sales in dollars =
Fixed expenses + Operating income
Contribution margin ratio
=
$12,000 + 0
0.40 (from req. 1)
= $30,000
(continued)
E 7-36A
Chapter 7 Cost-Volume-Profit (CVP) Analysis 220

Req. 3
3a)
Sales in units to
reach desired profit
=
Fixed expenses + Operating Income
Contribution margin per unit
= $12,000 + $50,000
$8
= $62,000
$8
= 7,750 units
3b)
3c)
3d)
Margin of Safety in Dollars $70,000
Budgeted Sales Dollars $100,000
Margin of Safety % 70.00%
(20-25 min.)
E 7-37A
Managerial Accounting 2e Solutions Manual
Budgeted Sales Units 5,000
Breakeven Sales Units - 1,500
Margin of Safety in Units 3,500
Budgeted Sales $100,000
Breakeven Sales Volume $30,000
Margin of Safety in Dollars $70,000
221

1. Sales price per unit ............................................. $20.00
Variable cost per unit ......................................... $15.00
Contribution margin per unit ............................. $ 5.00
Contribution margin ratio =
$5.00
= .25
$20.00
= 25%
Sales Revenue (120,000 × $20.00)……………… $ 2,400,000
Less: Variable expenses (120,000 × $15.00)… <1,800,000 >
Contribution margin…………………………….. $ 600,000
2. Sales volume (units)……………………………… 150,000
Unit contribution margin………………………… x $5.00
Contribution margin……………………………… $750,000
Less: Fixed expenses…………………………… <468,000 >
Operating income…………………………………. $282,000
3. Sales revenue……………………………………… $4,000,000
Contribution margin ratio……………………….. x 25 %
Contribution margin……………………………… $1,000,000
Less: fixed expenses……………………………. <468,000 >
Operating income…………………………………. $ 532,000
4.
B/E sales in units =
$468,000
=
93,600
$5.00 units
B/E sales in dollars =
$468,000
= $1,872,000
25%
5. $468,000 + $260,000
= 145,600 units
$5.00
Chapter 7 Cost-Volume-Profit (CVP) Analysis 222

(continued)
E 7-37A
6. Original contribution margin per unit .................. $5.00
Less: Increase in Direct labor cost per unit
($5.00 x 10%) .......................................................... $0.50
New contribution margin per unit………………... $4.50
Original fixed expenses……………………………. $468,000
Plus: Increase in fixed expenses……………….. 22,500
New fixed expenses………………………………… $490,500
New breakeven in units =
$490,500
=
109,000
$4.50 Units
7. Contribution margin (from part 1)………………... $600,000
Less: Fixed expenses……………………………... <468,000 >
Operating income…………………………………… $132,000
Operating Leverage factor =
$600,000
= 4.55
$132,000
8. Increase in volume…………………….. 8%
× Operating leverage factor………….. 4.55
New fixed expenses…………………… 36.4%
9. Margin of safety = Sales Sales at breakeven −
=
$2,400,000 $1,872,000 −
(from part 1) (from part 4)
= $528,000
Margin of safety as a
percentage
=
528,000
2,400,000
= .22 = 22%
Managerial Accounting 2e Solutions Manual 223

(continued)
E 7-37A
10.