Contribution Margin Review the contribution margin income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statements. Complete the following table from the data provided on the income statements. Each company sold 75,800 units during the year. Cover-to-Cover Company Biblio Files Company Contribution margin ratio (percent) fill in the blank f5ebbbf3403f066_1% fill in the blank f5ebbbf3403f066_2% Unit contribution margin $fill in the blank f5ebbbf3403f066_3 $fill in the blank f5ebbbf3403f066_4 Break-even sales (units) fill in the blank f5ebbbf3403f066_5 fill in the blank f5ebbbf3403f066_6 Break-even sales (dollars) $fill in the blank f5ebbbf3403f066_7 $fill in the blank f5ebbbf3403f066_8 Income Statement - Cover-to-Cover Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8 Sales $379,000 Variable costs: Manufacturing expense $227,400 Selling expense 18,950 Administrative expense 56,850 (303,200) Contribution margin $75,800 Fixed costs: Manufacturing expense $5,000 Selling expense 4,000 Administrative expense 9,950 (18,950) Operating income $56,850 Income Statement - Biblio Files Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8 Sales $379,000 Variable costs: Manufacturing expense $151,600 Selling expense 15,160 Administrative expense 60,640 (227,400) Contribution margin $151,600 Fixed costs: Manufacturing expense $76,750 Selling expense 8,000 Administrative expense 10,000 (94,750) Operating income $56,850
3. Why does the total cost computed for 4,360 units not match the data for January?
a. The high-low method is accurate only for months in which production is at full capacity.
b. The high-low method only gives accurate data when fixed costs are zero.
c. The high-low method gives a formula for the estimated total cost and may not match levels of production other than the highest and lowest.
d. The high-low method gives accurate data only for levels of production outside the relevant range.
Contribution Margin
Review the contribution margin income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statements. Complete the following table from the data provided on the income statements. Each company sold 75,800 units during the year.
| Cover-to-Cover Company |
Biblio Files Company |
|
| Contribution margin ratio (percent) | fill in the blank f5ebbbf3403f066_1% | fill in the blank f5ebbbf3403f066_2% |
| Unit contribution margin | $fill in the blank f5ebbbf3403f066_3 | $fill in the blank f5ebbbf3403f066_4 |
| Break-even sales (units) | fill in the blank f5ebbbf3403f066_5 | fill in the blank f5ebbbf3403f066_6 |
| Break-even sales (dollars) | $fill in the blank f5ebbbf3403f066_7 | $fill in the blank f5ebbbf3403f066_8 |
Income Statement - Cover-to-Cover
| Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8 |
||
| Sales | $379,000 | |
| Variable costs: | ||
| Manufacturing expense | $227,400 | |
| Selling expense | 18,950 | |
| Administrative expense | 56,850 | (303,200) |
| Contribution margin | $75,800 | |
| Fixed costs: | ||
| Manufacturing expense | $5,000 | |
| Selling expense | 4,000 | |
| Administrative expense | 9,950 | (18,950) |
| Operating income | $56,850 |
Income Statement - Biblio Files
| Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8 |
||
| Sales | $379,000 | |
| Variable costs: | ||
| Manufacturing expense | $151,600 | |
| Selling expense | 15,160 | |
| Administrative expense | 60,640 | (227,400) |
| Contribution margin | $151,600 | |
| Fixed costs: | ||
| Manufacturing expense | $76,750 | |
| Selling expense | 8,000 | |
| Administrative expense | 10,000 | (94,750) |
| Operating income | $56,850 |
Sales Mix
Biblio Files Company is making plans for its next fiscal year, and decides to sell two new types of bookshelves, Basic and Deluxe. The company has compiled the following estimates for the new product offerings.
| Type of Bookshelf |
Sales Price per Unit |
Variable Cost per Unit |
| Basic | $5.00 | $1.75 |
| Deluxe | 9.00 | 8.10 |
The company is interested in determining how many of each type of bookshelf would have to be sold in order to break even. If we think of the Basic and Deluxe products as components of one overall enterprise product called “Combined,” the unit contribution margin for the Combined product would be $2.31. Fixed costs for the upcoming year are estimated at $323,400. Recall that the totals of all the sales mix percents must be 100%. Determine the amounts to complete the following table.
| Type of Bookshelf | Percent of Sales Mix | Break-Even Sales in Units | Break-Even Sales in Dollars |
| Basic | fill in the blank 8ff629ff5f97062_1% | fill in the blank 8ff629ff5f97062_2 | $fill in the blank 8ff629ff5f97062_3 |
| Deluxe | fill in the blank 8ff629ff5f97062_4% | fill in the blank 8ff629ff5f97062_5 | $fill in the blank 8ff629ff5f97062_6 |
Target Profit
Refer again to the income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statement. Note that both companies have the same sales and net income. Answer questions (1) - (3) that follow, assuming that all data for the coming year is the same as the current year, except for the amount of sales.
1. If Cover-to-Cover Company wants to increase its profit by $40,000 in the coming year, what must their amount of sales be?
$fill in the blank b76b8eff704e00e_1
2. If Biblio Files Company wants to increase its profit by $40,000 in the coming year, what must their amount of sales be?
$fill in the blank b76b8eff704e00e_2
3. What would explain the difference between your answers for (1) and (2)?
a. Biblio Files Company has a higher contribution margin ratio, and so more of each sales dollar is available to cover fixed costs and provide operating income.
b. Cover-to-Cover Company’s contribution margin ratio is lower, meaning that it’s more efficient in its operations.
c. The companies have goals that are not in the relevant range.
d. The answers are not different; each company has the same required sales amount for the coming year to achieve the desired target profit.
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