Asked by Berto Familia on Jul 02, 2024
Verified
In the month of September Matlock Industries sold 800 units of product. The average sales price was $30. During the month fixed costs were $6300 and variable costs were 70% of sales.
Instructions
(a) Determine the contribution margin in dollars per unit and as a ratio.
(b) Using the contribution margin technique compute the break-even point in dollars and in units.
Contribution Margin
The amount by which the sales revenue of a product exceeds its variable costs, indicating how much contributes towards covering fixed costs and generating profit.
Break-Even Point
The point at which total costs and total revenues are equal, resulting in no net gain or loss for the business.
Fixed Costs
Costs that do not change with the level of production or sales, such as rent, salaries, and insurance premiums, providing stability to a company's expenses.
- Apply the principles of contribution margin in different commercial contexts.
- Compute the break-even points and safety margins in terms of units and monetary values.
Verified Answer
JJ
Jaisetea Jefferson6 days ago
Final Answer :
(a)
Contribution margin (in dollars) ‾ Sales ( 800×$30)$24,000 Less: Variable costs ($24,000×70%)16,800 Contribution margin $7,200\begin{array}{ll}\underline{\text { Contribution margin (in dollars) } }& \\ \text { Sales ( } 800 \times \$ 30) & \$ 24,000 \\\text { Less: Variable costs }(\$ 24,000 \times 70 \%) & 16,800 \\\text { Contribution margin } & \$ 7,200\end{array} Contribution margin (in dollars) Sales ( 800×$30) Less: Variable costs ($24,000×70%) Contribution margin $24,00016,800$7,200
Unit contribution margin‾ Unit sales price $30 Less: Variable cost per unit ($30×70%)21‾ Unit contribution margin $9‾\begin{array}{l}\underline{\text { Unit contribution margin} }\\\text { Unit sales price } & \$ 30 \\\text { Less: Variable cost per unit }(\$ 30 \times 70 \%) & \underline{21} \\\text { Unit contribution margin }&\underline{\$9}\end{array} Unit contribution margin Unit sales price Less: Variable cost per unit ($30×70%) Unit contribution margin $3021$9
Contribution margin ratio‾$9÷$30=30%\begin{array}{llr} \underline{\text { Contribution margin ratio} } &\\\$ 9 \div \$ 30=30 \%\\\end{array} Contribution margin ratio$9÷$30=30%
(b)
Break-even sales (in dollars) ‾ Fixed costs ÷ Contribution margin ratio $6,300÷30%=$21,000 Break-even sales (in units) ‾ Fixed costs ÷ Contribution margin per unit $6,300÷$9=700 units\begin{array}{llr} \underline{\text { Break-even sales (in dollars) }} &\\ \text { Fixed costs \( \div \) Contribution margin ratio } &\\ \text { \( \$ 6,300 \div 30 \%=\$ 21,000 \) } &\\\\ \underline{\text { Break-even sales (in units) }} &\\ \text { Fixed costs \( \div \) Contribution margin per unit} &\\ \text { \( \$ 6,300 \div \$ 9=700 \) units} &\\\end{array} Break-even sales (in dollars) Fixed costs ÷ Contribution margin ratio $6,300÷30%=$21,000 Break-even sales (in units) Fixed costs ÷ Contribution margin per unit $6,300÷$9=700 units
Contribution margin (in dollars) ‾ Sales ( 800×$30)$24,000 Less: Variable costs ($24,000×70%)16,800 Contribution margin $7,200\begin{array}{ll}\underline{\text { Contribution margin (in dollars) } }& \\ \text { Sales ( } 800 \times \$ 30) & \$ 24,000 \\\text { Less: Variable costs }(\$ 24,000 \times 70 \%) & 16,800 \\\text { Contribution margin } & \$ 7,200\end{array} Contribution margin (in dollars) Sales ( 800×$30) Less: Variable costs ($24,000×70%) Contribution margin $24,00016,800$7,200
Unit contribution margin‾ Unit sales price $30 Less: Variable cost per unit ($30×70%)21‾ Unit contribution margin $9‾\begin{array}{l}\underline{\text { Unit contribution margin} }\\\text { Unit sales price } & \$ 30 \\\text { Less: Variable cost per unit }(\$ 30 \times 70 \%) & \underline{21} \\\text { Unit contribution margin }&\underline{\$9}\end{array} Unit contribution margin Unit sales price Less: Variable cost per unit ($30×70%) Unit contribution margin $3021$9
Contribution margin ratio‾$9÷$30=30%\begin{array}{llr} \underline{\text { Contribution margin ratio} } &\\\$ 9 \div \$ 30=30 \%\\\end{array} Contribution margin ratio$9÷$30=30%
(b)
Break-even sales (in dollars) ‾ Fixed costs ÷ Contribution margin ratio $6,300÷30%=$21,000 Break-even sales (in units) ‾ Fixed costs ÷ Contribution margin per unit $6,300÷$9=700 units\begin{array}{llr} \underline{\text { Break-even sales (in dollars) }} &\\ \text { Fixed costs \( \div \) Contribution margin ratio } &\\ \text { \( \$ 6,300 \div 30 \%=\$ 21,000 \) } &\\\\ \underline{\text { Break-even sales (in units) }} &\\ \text { Fixed costs \( \div \) Contribution margin per unit} &\\ \text { \( \$ 6,300 \div \$ 9=700 \) units} &\\\end{array} Break-even sales (in dollars) Fixed costs ÷ Contribution margin ratio $6,300÷30%=$21,000 Break-even sales (in units) Fixed costs ÷ Contribution margin per unit $6,300÷$9=700 units
Learning Objectives
- Apply the principles of contribution margin in different commercial contexts.
- Compute the break-even points and safety margins in terms of units and monetary values.