
a.
Determine the unit contribution margin and break-even point in units and break-even point in dollar sales.
a.

Explanation of Solution
Contribution Margin:
The process or theory which is used to judge the benefit given by each unit of the goods produced is called as contribution margin.
The contribution margin is the difference between the selling price and the cost of the product.
Formula to compute the unit contribution margin:
Calculate the contribution margin per unit:
Step 1: Calculate the variable cost per unit.
Step 2: Calculate the contribution margin per unit.
Calculate the break-even volume in units:
Step 1: Calculate the total monthly fixed costs.
Step 2: Calculate the break-even volume in units.
Working note:
Calculate the amount of
Calculate the break-even volume in dollars:
b.
Draw a monthly cost-volume-profit graph for the sales volume up to 800 units per machine per month.
b.

Explanation of Solution
Cost-Volume- Profit Analysis (CVP Analysis): This analysis is helpful in determining that how any type of change in cost determines company’s income.
c.
Compute the sales volume in units and in dollars per month.
c.

Explanation of Solution
Compute the sales volume in units:
Step 1: Calculate the total desired contribution margin.
Step 2: Calculate the sales volume in units.
Working note:
Calculate the amount of desired operating income:
Compute the sales volume in dollars:
d.
Determine the changes in break-even volume in units.
d.

Explanation of Solution
Calculate the changes in break-even volume in units:
Working notes:
Calculate the amount of new monthly fixed costs:
Calculate the new contribution margin per unit:
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Chapter 20 Solutions
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