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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.
