Contribution margin per unit of Washer: $240 x .25 =$ 60Contribution margin per unit of Dryer: $120 x .75 = 90Weighted-average contribution margin$150c.Break-even point = Fixed cost ÷Weighted-average contribution marginBreak-even point = $78,000 / $150 = 520 unitsd.Required sales for Washer = 520 units x .25 =130 unitsRequired sales for Dryer = 520 units x .75 = 390unitsTotal520unitsWasherDryer Total Sales price (a)$540$300Variable costs (b)$300$180Break-even units (c)130 units390 units520 unitsSales (a x c)$ 70,200$117,000$187,200Variable costs (b x c)(39,000)(70,200)(109,200)Contribution margin31,20046,80078,000Fixed cost(34,000)(44,000)(78,000)Net income$ (2,800)$ 2,800$ -0-3-53e.
Chapter 03 - Analysis of Cost, Volume, and Pricing to Increase Profitability f.Total budgeted sales – Total break-even salesMargin of safety =––––––––––––––––––––––––––––––––––––––––––––––Total budgeted sales$576,000 – $187,200Margin of safety =–––––––––––––––––––––––$576,000Margin of safety =67.5%ATC 3-1 a.Operating leverage is the concept that explains how the percentage change innet earnings can increase at a faster rate than the percentage increase inrevenues.b. Operating leverage exists because of fixed costs. If all of a company’s costs arevariable in nature, its percentage change in earnings will be exactly the same asits percentage change in revenue, and it will not experience operating leverage.c. Other things being equal, as a company’s revenues rise, its variable costs riseproportionately, but their fixed costs stay constant, within a relevant range. Thus,its variable costs become a larger proportion of its total costs and its fixed costsbecome a smaller proportion of total costs, which reduces its operating leverage.Obviously, when a company’s revenue grows from $5.41 billion to $8.34 billionthe company’s fixed costs probably increase as well, but probably not as rapidlyas the rise in its variable costs.3-54
Chapter 03 - Analysis of Cost, Volume, and Pricing to Increase Profitability ATC 3-2 a. and b.AlternativesOriginal123Revenue$8,000$12,800$7,600$7,200Variable costs(4,800)(7,680)(3,040)(4,320)Contribution margin3,2005,1204,5602,880Fixed cost(2,400)(4,000)(2,400)(1,600)Net income$ 800$1,120$2,160$1,280Answers can be determined rapidly by multiplying the contribution margin per unit bythe number of units sold and subtracting fixed cost.c.The discussion will take many forms. However, it is likely that leadership will bedecided by action. The people who aggressively step forward are usually givenauthority. In general, power is taken, not given. Also, division of labor should bediscussed. In all likelihood the section that won divided the three tasks amongdifferent groups. Each group only did part of the total task. It is highly inefficientto have each group do all of the tasks.3-55
Chapter 03 - Analysis of Cost, Volume, and Pricing to Increase Profitability ATC 3-3 a. Possible activity measures, shown under “Operating Data,” are:Revenue passengers carried Enplaned passengersRevenue passenger milesTrips flownb. Of the four activities listed in Item 6, Revenue passenger miles would probablybe best activity measure because it considers the miles flown, and not just thenumber of trip or number of passengers flown. It cost more to fly a passenger1,000 miles than it does 500 miles.