Chapter 21, Problem 19E

To determine

Concept Introduction:

Contribution Margin:

Contribution Margin is the amount of sales after adjusting variable costs. Contribution Margin is calculated with the help of following formulas:

  $\text{Contribution Margin per unit = Sales price – Variable cost per unit}$

Breakeven point:

The Breakeven point is level of sales at which the net profit is zero. In other words, the breakeven point is the amount of sales at which there no loss and no profit. The formulas to calculate breakeven point are as follows:

  $Breakevenpoint\left(Units\right)=\frac{TotalFixedcosts}{Contributionmarginperunit}$

  $Breakevenpoint\left(Dollar\right)=\frac{TotalFixedcosts}{Contributionmarginratio}$

Requirement-1:

The Contribution margin per unit

Answer to Problem 19E

The Contribution margin per unit shall be $60

Explanation of Solution

The Contribution margin per unit is calculated as follows:

Contribution margin per unit = Sales Price − Variable Cost per unit

= 240-180 = 60

To determine

Concept Introduction:

Contribution Margin:

Contribution Margin is the amount of sales after adjusting variable costs. Contribution Margin is calculated with the help of following formulas:

  $\text{Contribution Margin per unit = Sales price – Variable cost per unit}$

Breakeven point:

The Breakeven point is level of sales at which the net profit is zero. In other words, the breakeven point is the amount of sales at which there no loss and no profit. The formulas to calculate breakeven point are as follows:

  $Breakevenpoint\left(Units\right)=\frac{TotalFixedcosts}{Contributionmarginperunit}$

  $Breakevenpoint\left(Dollar\right)=\frac{TotalFixedcosts}{Contributionmarginratio}$

Requirement-2:

The Contribution margin Ratio

Answer to Problem 19E

The Contribution margin Ratio shall be 25%

Explanation of Solution

The Contribution margin Ratio is calculated as follows:

Contribution margin Ratio = (Sales Price − Variable Cost per unit) / Sales Price

= (240-180) / 240 = 25%

To determine

Concept Introduction:

Contribution Margin:

Contribution Margin is the amount of sales after adjusting variable costs. Contribution Margin is calculated with the help of following formulas:

  $\text{Contribution Margin per unit = Sales price – Variable cost per unit}$

Breakeven point:

The Breakeven point is level of sales at which the net profit is zero. In other words, the breakeven point is the amount of sales at which there no loss and no profit. The formulas to calculate breakeven point are as follows:

  $Breakevenpoint\left(Units\right)=\frac{TotalFixedcosts}{Contributionmarginperunit}$

  $Breakevenpoint\left(Dollar\right)=\frac{TotalFixedcosts}{Contributionmarginratio}$

Requirement-3:

Breakeven Point in units

Answer to Problem 19E

Breakeven Point in units shall be 5,400 units

Explanation of Solution

The Breakeven Point in units is calculated as follows:

Breakeven Point = Total Fixed Cost / Contribution Margin per unit

= 324000 / 60

= 5400

To determine

Concept Introduction:

Contribution Margin:

Contribution Margin is the amount of sales after adjusting variable costs. Contribution Margin is calculated with the help of following formulas:

  $\text{Contribution Margin per unit = Sales price – Variable cost per unit}$

Breakeven point:

The Breakeven point is level of sales at which the net profit is zero. In other words, the breakeven point is the amount of sales at which there no loss and no profit. The formulas to calculate breakeven point are as follows:

  $Breakevenpoint\left(Units\right)=\frac{TotalFixedcosts}{Contributionmarginperunit}$

  $Breakevenpoint\left(Dollar\right)=\frac{TotalFixedcosts}{Contributionmarginratio}$

Requirement-4:

Breakeven Point in Dollar

Answer to Problem 19E

Breakeven Point in Dollar shall be $1,296,000

Explanation of Solution

The Breakeven Point in Dollars is calculated as follows:

Breakeven Point (Dollars) = Total Fixed Cost / Contribution Margin Ratio

= 324000 / 25%

= 1296000