a.
Compute the missing amount using contribution margin per unit.
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:
Sales | Variable Costs | Contribution Margin Ratio per Unit | Fixed Costs | Operating Income | Units Sold | ||
(1) | $200,000 | $120,000 | $20 | $55,000 | $25,000 | 4,000 | |
(2) | 180,000 | 105,000 | 15 | 45,000 | 30,000 | 5,000 | |
(3) | 600,000 | 360,000 | 30 | 150,000 | 90,000 | 8,000 |
Table (1)
Working notes:
Calculate the amount of sales:
Step 1: Calculate the unit variable cost:
Step 2: Calculate the unit sales price:
Step 3: Calculate the amount of sales using contribution margin per unit:
Calculate the amount of variable costs using contribution margin per unit:
Calculate the amount of variable costs using contribution margin per unit:
Calculate contribution margin ratio per unit:
Step 1: Calculate unit variable cost.
Step 2: Calculate the unit sales price.
Step 3: Calculate contribution margin ratio per unit:
Calculate the amount of fixed costs:
Step 1: Calculate contribution margin.
Step 2: Calculate the amount of fixed costs.
Calculate the amount of units sold using contribution margin per unit:
b.
Compute the missing amount using contribution margin ratio.
b.
Explanation of Solution
Contribution Margin Ratio: The contribution margin ratio shows the amount of difference in the actual sales value and the variable expenses in percentage. This margin indicates that percentage which is available for sale above the fixed costs and the profit.
Sales | Variable Costs | Margin Ratio (%) | Fixed Costs | Operating Income | ||
(1) | $900,000 | $720,000 | 20% | $85,000 | $95,000 | |
(2) | 600,000 | 360,000 | 40% | 165,000 | 75,000 | |
(3) | 500,000 | 350,000 | 30% | 90,000 | 60,000 |
Table (1)
Working notes:
Calculate the contribution margin ratio:
Calculate the amount of fixed costs:
Step 1: Calculate contribution margin.
Step 2: Calculate the amount of fixed costs.
Calculate the amount of variable cost using contribution margin ratio:
Calculate the amount of fixed costs:
Step 1: Calculate contribution margin.
Step 2: Calculate the amount of fixed costs.
Calculate the amount of sales using contribution margin ratio:
Step 1: Calculate the amount of fixed costs.
Step 2: Calculate the amount of sales using contribution margin ratio:
Calculate the amount of variable cost using contribution margin ratio:
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