Accounting Managerial Ch 3

The amount of a unit’s sales price that helps to cover fixed expenses is its _____.

contribution margin

A company’s product sells for $150 and has variable cost of $60 associated with the product. What is its contribution margin per unit?

$90

A company’s contribution margin per unit is $25. If the company increases its activity level from 200 units to 350 units, how much will its total contribution margin increase?

$3,750

Show work:

350 - 200 = 150

150 x 25 = 3,750

A company sells its products for $80 per unit and has per-unit variable costs of $30. What is the contribution margin per unit?

$50

Company A wants to earn $5,000 profit in the month of January. If their fixed costs are $10,000 and their product has a per-unit contribution margin of $250, how many units must they sell to reach their target income?

60 units

Show work:

10,000 + 5,000 = 15,000

15,000 ÷ 250 = 60

When sales price increases and all other variables are held constant, the break-even point will ______.

decrease

When sales price decreases and all other variables are held constant, the break-even point will _______.

increase

Waskowski Company sells 3 products (A, B, and C) with a sales mix of 3:2:1. Unit sales price are shown. What is the sales price per composite unit?

\
Products A - $7

Product B - $4

Product C - $6

$35.00

Show work:

7 x 3 = 21

4 x 2 = 8

6 x 1 = 6

21 + 8 + 6 = 35

sells $75 per unit

variable cost $30 per unit

fixed expenses $22,500 a month

What is the amount of units to achieve the break-even point?

500 units

Show work:

break-even = fixed cost ÷ contribution margin

x = $22,500 ÷ 45

22,500 ÷ 45 = 500

Define and explain contribution margin on a per unit basis.

Contribution margin is the amount by which a product’s selling price exceeds its total variable cost per unit. Contribution margin on a per unit basis is the per unit contribution toward covering the fixed costs.

Explain how it is possible for cost to change without changing the break-even point.

It is possible for cost to change without changing the break-even point if the sale of the products cover the the expected amount. For example, Jake is selling an apple for $.50, banana for $.50, and strawberry for $1.50. His most profit sale would be the strawberry because it is the most expensive product. Let say, he sold 4 apples, 4 bananas, and 2 strawberries. He would earn $7 dollars. Now when the seasons for those fruits are over and the demands for them for more expensive. He would increase the sale price for those produce; apple is $1, banana is $1, and strawberry is $2.00. To earn the same amount, $7, before the price change. He would only need to sale 1 apple, 2 bananas, and 2 strawberry. If the cost increase then the selling expectancy decrease, but if the cost decrease then the selling expectancy need to increase.