Managerial Accounting
Managerial Accounting
3rd Edition
ISBN: 9780077826482
Author: Stacey M Whitecotton Associate Professor, Robert Libby, Fred Phillips Associate Professor
Publisher: McGraw-Hill Education
Question
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Chapter 6, Problem 20E
To determine

(a)

Contribution Margin:

The margin of profit which is computed after considering the variable cost only and not the fixed costis known as contribution. In other words, it means the contribution made by selling the product after covering its variable cost to the company.

The contribution margin ratio.

Expert Solution
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Answer to Problem 20E

The contribution margin ratio is 40%.

Explanation of Solution

Contribution Margin Income Statement:

Particulars Amount
Revenue $400,000
Total variable cost ($240,000)
Total Contribution Margin $160,000

Contribution Margin Ratio=Sales priceVariable costSales price=$400,000$240,000$400,000=40%

To determine

(b)

Concept introduction:

Breakeven Point:

The level of sales where the company is neither on profit nor loss is termed as breakeven point. In other words, that level of sales at which the fixed cost of the business is recovered.

To compute:

The breakeven point if the fixed cost is $80,000.

Expert Solution
Check Mark

Answer to Problem 20E

The breakeven point is $200,000.

Explanation of Solution

Particulars Amount
Sales Price (A) $400,000
Variable Cost per Canoe (B) ($240,000)
Contribution Margin (AB) $160,000
Breakeven Sales $200,000

The break-even point in units is calculated as:

Breakeven Point=Fixed CostContribution Margin Ratio=$800,00040%=$200,000

To determine

(c)

Concept introduction:

Target Profit:

The target profit is that profit which a company decides to achieve and this analysis helps in determinig the level of sales by which this target can be achieved.

The total sales to achieve target profit of $90,000.

Expert Solution
Check Mark

Answer to Problem 20E

The target sale point is $425,000.

Explanation of Solution

Contribution Margin Income Statement:

Particulars Amount
Sales Price (A) $400,000
Variable Cost per Canoe (B) ($240,000)
Contribution Margin (AB) $160,000

The number units to be sold for achieving the target profit are calculated as:

Target Sales=Fixed Cost+Target ProfitContribution Margin Ratio=$80,000+$90,00040%=$425,000

To determine

(d)

Concept introduction:

Target Profit:

The target profit is that profit which a company decides to achieve and this analysis helps in determinig the level of sales by which this target can be achieved.

The sale revenue from each product to achieve target profit of $90,000.

Expert Solution
Check Mark

Answer to Problem 20E

The sale revenue from each product is divided as per their percentage ratio product mix which amounts to $425,000. The share of sale of each product i.e. Thermos A, Thermos B, and Thermos C will be $148,750, $191,750, and $85,000 respectively.

Explanation of Solution

The number units to be sold for achieving the target profit are calculated as:

Target Sales=Fixed Cost+Target ProfitContribution Margin Ratio=$80,000+$90,00040%=$425,000

The share of sales of Thermos A will be $148,750($425,000×35%).

The share of sales of Thermos B will be $191,750($425,000×45%).

The share of sales of Thermos C will be $85,000($425,000×20%).

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Chapter 6 Solutions

Managerial Accounting

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