Asked by Danielle Tabor on Jun 19, 2024
Verified
In 2015 Stallman Co. had a break-even point of $800000 based on a selling price of $10 per unit and fixed costs of $200000. In 2016 the selling price and variable costs per unit did not change but the break-even point increased to $840000.
Instructions
(a) Compute the variable cost per unit and the contribution margin ratio for 2015.
(b) Using the contribution margin ratio compute the increase in fixed costs for 2016.
Variable Cost
Expenses that fluctuate in direct correlation with the volume of production or business operations.
Contribution Margin Ratio
A financial metric that represents the portion of sales revenue that is not consumed by variable costs and can contribute to covering fixed costs.
Break-Even Point
The point at which total costs equal total revenue, resulting in no profit but also no loss.
- Analyze the repercussions of adjustments in the cost arrangement and sales numbers on corporate income.
- Implement contribution margin concepts in a variety of business circumstances.
Verified Answer
=$200,00080,000=$2.50 Variable cost per unit =$10−$2.50=$7.50 Contribution margin ratio =$2.50÷$10=25%\begin{array}{l}=\frac{\$ 200,000}{80,000}=\$ 2.50 \\\\\text { Variable cost per unit } \quad=\$ 10-\$ 2.50=\$ 7.50 \\\text { Contribution margin ratio } \quad=\$ 2.50 \div \$ 10=25 \% \\\end{array}=80,000$200,000=$2.50 Variable cost per unit =$10−$2.50=$7.50 Contribution margin ratio =$2.50÷$10=25%
(b)
Fixed costs = Break-even Sales × CM Ratio =$840,000×25%=$210,000\begin{aligned}\text { Fixed costs } & =\text { Break-even Sales } \times \text { CM Ratio } \\& =\$ 840,000 \times 25 \%=\$ 210,000\end{aligned} Fixed costs = Break-even Sales × CM Ratio =$840,000×25%=$210,000
Therefore fixed costs increased $10.000 \$ 10.000 $10.000 (\$210.000 - $200.000) \$ 200.000) $200.000) .
Learning Objectives
- Analyze the repercussions of adjustments in the cost arrangement and sales numbers on corporate income.
- Implement contribution margin concepts in a variety of business circumstances.
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