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 83,800 units during the year. Cover-to-Cover Company Biblio Files Company Contribution margin ratio (percent) Unit contribution margin Break-even sales (units) Break-even sales (dollars) Review the definitions of contribution margin ratio and unit contribution margin. Also review the formulas for break-even in terms of units sold and sales dollars. Income Statement - Cover-to-Cover Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8 Sales $419,000 Variable costs: Manufacturing expense $251,400 Selling expense 20,950 Administrative expense 62,850 (335,200) Contribution margin $83,800 Fixed costs: Manufacturing expense $5,000 Selling expense 4,000 Administrative expense 11,950 (20,950) Operating income $62,850 Income Statement - Biblio Files Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8 Sales $419,000 Variable costs: Manufacturing expense $167,600 Selling expense 16,760 Administrative expense 67,040 (251,400) Contribution margin $167,600 Fixed costs: Manufacturing expense $86,750 Selling expense 8,000 Administrative expense 10,000 (104,750) Operating income $62,850
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 83,800 units during the year.
| Cover-to-Cover Company |
Biblio Files Company |
|
| Contribution margin ratio (percent) | ||
| Unit contribution margin | ||
| Break-even sales (units) | ||
| Break-even sales (dollars) |
Income Statement - Cover-to-Cover
| Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8 |
||
| Sales | $419,000 | |
| Variable costs: | ||
| Manufacturing expense | $251,400 | |
| Selling expense | 20,950 | |
| Administrative expense | 62,850 | (335,200) |
| Contribution margin | $83,800 | |
| Fixed costs: | ||
| Manufacturing expense | $5,000 | |
| Selling expense | 4,000 | |
| Administrative expense | 11,950 | (20,950) |
| Operating income | $62,850 |
Income Statement - Biblio Files
| Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8 |
||
| Sales | $419,000 | |
| Variable costs: | ||
| Manufacturing expense | $167,600 | |
| Selling expense | 16,760 | |
| Administrative expense | 67,040 | (251,400) |
| Contribution margin | $167,600 | |
| Fixed costs: | ||
| Manufacturing expense | $86,750 | |
| Selling expense | 8,000 | |
| Administrative expense | 10,000 | (104,750) |
| Operating income | $62,850 |
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 $334,950. 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 | |||
| Deluxe |
Recall that the Combined unit contribution margin is given by [(Basic unit contribution margin) x (Basic percent of sales mix)] + [(Deluxe unit contribution margin) x (Deluxe percent of sales mix)]. Since these percents must add up to 100%, we have the following:
(Basic percent of sales mix) + (Deluxe percent of sales mix) = 100%, so that
(Deluxe percent of sales mix) = 100% - (Basic percent of sales mix)
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 $20,000 in the coming year, what must their amount of sales be?
2. If Biblio Files Company wants to increase its profit by $20,000 in the coming year, what must their amount of sales be?
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