Unit Contribution Margin

Acct 202- Summer 04

Chapter 6

Problems

6-3

1. Break even point in units sold = Fixed expense

Unit Contribution Margin

135,000 = 1,500 Lanterns

90

Break even point in total sales dollars = Fixed expense

CM Ratio

135,000 = 450,000 dollars

.3

2. It will result in a higher break even point. The reason is because the company has a high variable cost at about 63%. So the more they sell the high variable cost will go up. As a result the break even point will rise.

3.

Total Per Unit

Sales (8000) 720,000 90

Less Variable Exp. 453600 63

CM 266400 27

Less Fixed Cost 135000

Net Operating Inc. 131400

Expected Increase

Sales 810,000 81

Less Variable Exp. 630,000 63

CM 180,000 18

Less Fixed Cost 135,000

Net Operating Inc. 45,000

4. 135,000 + 72,000 = 11,500 Lanterns

18

6-4

1. Superior Door Company
Contribution Income Statement

Total Per Unit
Sales (30,000 Doors)……………\$ 1,800,000 \$60
Less Variable Expenses………… 1,260,000 42
Contribution Margin…………… 540,000 18
Less Fixed Expenses…………… 450,000
Net Operating Income…………. 90,000

Degree of Operating Leverage = Contribution margin
Net Operating Income

540,000 = 6 operating leverage
90,000

2.
Present Expected Increase
Sales………………………\$1,800,000 2,250,000 450,000
Less Variable Exp………… 1,260,000 1,575,000 315,000
Contribution Margin………. 540,000 675,000 135,000
Less Fixed Expenses………. 450,000 450,000 0
Net Operating Income…….. 90,000 225,000 135,000

a. Since the sales increased by 25% you would time that by the operating
leverage so the equation is (6 x 25%) = 150% increase in net operating income

b. Present Net Operating Income………. \$90,000
Expected increase in net operating
Income next year (150% x 90,000)….. 135,000
Total Expect Net Operating Inc. 225,000

6-6

1. Break Even Point In Units Sold = Fixed Expense
Units Contribution Margin

150,000/12 = 12,500 Units

Break-Even Point In Total Sales Dollars = Fixed Expense
CM Ratio

150,000/.3 = 500,000 Dollars

2. The contribution margin at break even point is 150,000 dollars because it has
to equal fixed expenses

3. Units Sold To Attain Target Profit = Fixed Expenses + Target Profit
Unit Contribution Margin

150,000 + 18,000 = 14,000 Units
12

Total Per Unit
Sales (14,000 units)…………560,000 \$40
Less Variable Expenses……. 392,000 28
Contribution Margin…………168,000 12
Less Fixed Expenses…………150,000
Net Operating Margin………..18,000

4.
Margin Of Safety In Dollars = Total Sales – Break Even Sales

\$600,000 – 500,000 = 100,000 dollars

Margin Of Safety Percentage = Margin Of Safety In Dollars
Total Sales

100,000/600,000 = 16.7 percent

5. The CM Ratio is 30%

80,000 x 30% = 24,000

The Net Operating income will increase by 24,000

6-7

1. 40% x 60 = 24
60 – 24 = 36
Variable Expenses = 36 Dollars per Unit

2.

a. Sales = Variable Expenses + Fixed Expenses + Profits

60Q= 36Q + 360,000 + 0
24 Q= 360,000
Q = 15,000 Units

15,000 Units X 60 = 900,000 dollars

b. 60Q = 36Q + 360,000 + 90,000
24Q= 450,000
Q= 18750

18750 x 60 = 1,125,000

c. 60Q= 33Q + 360,000 + 0
27Q= 360,000
Q= 13,333.33333 Units

13,333.33333 Units x 60 = 800,000

3.

a.360,000 = 15,000
24

360,000 = 900,000
.4

b. 360,000 + 90,000 = 18750 Units must be sold
24

18750 x 60 = 1,125,000

c. 360,000 = 13,333.33333
27

360,000 = 800,000
.45