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(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.
Answer to Problem 21E
The contribution margin ratio is
Explanation of Solution
Contribution Margin Income Statement:
| Particulars | Amount |
| Revenue | |
| Total variable cost |
|
| Total Contribution Margin |
(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
Answer to Problem 21E
The breakeven point is
Explanation of Solution
| Particulars | Amount |
| Revenue | |
| Total variable cost |
|
| Total Contribution Margin |
The contribution margin ratio is
The break-even point in units is calculated as:
(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
Answer to Problem 21E
The target sale point is
Explanation of Solution
Contribution Margin Income Statement:
| Particulars | Amount |
| Revenue | |
| Total variable cost |
|
| Total Contribution Margin |
The contribution margin ratio is
The total sales for achieving the target profit are calculated as:
(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
Answer to Problem 21E
The sale revenue from each product is divided as per their percentage ratio product mix which amounts to
Explanation of Solution
The total sales for achieving the target profit are calculated as:
The share of sales of Thermos A will be
The share of sales of Thermos B will be
The share of sales of Thermos C will be
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Chapter 6 Solutions
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