60 Contribution Margin 40000 8 40 Fixed expenses 12000 Operating income 28000

60 contribution margin 40000 8 40 fixed expenses

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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
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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
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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
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(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
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(continued) E 7-37A 10.
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