Exercise 3-13 (30 minutes)
1. The contribution margin per person would be:
Price per ticket …………………………………………..
$30
Variable expenses:
Dinner ……………………………………………………
$7
Favors and program ………………………………….
3
10
Contribution margin per person ……………………..
$20
The fixed expenses of the Extravaganza total $8,000; therefore, the
break-even point would be computed as follows:
Profit
= Unit CM × Q − Fixed expenses
$0
= ($30 − $10) × Q − $8,000
$0
= ($20) × Q − $8,000
$20Q
= $8,000
Q
= $8,000 ÷ $20
Q
= 400 persons; or, at $30 per person, $12,000
Alternative solution:
Fixed expenses
Unit sales =
to break even Unit contribution margin
$8,000
= = 400 persons
$20 per person
or, at $30 per person, $12,000.
2.
Variable cost per person ($7 + $3) …………………..
$10
Fixed cost per person ($8,000 ÷ 250 persons) ……
32
Ticket price per person to break even ……………….
$42
Exercise 3-14 (30 minutes)
1.
Model A100
Model B900
Total Company
Amount
%
Amount
%
Amount
%
Sales ……………
$700,000
100
$300,000
100
$1,000,000
100
Variable
expenses …….
280,000
40
90,000
30
370,000
37
Contribution
margin ……….
$420,000
60
$210,000
70
630,000
63
*
Fixed expenses
598,500
Net operating
income ……….
$ 31,500
*630,000 ÷ $1,000,000 = 63%.
2. The break-even point for the company as a whole is:
Fixed expenses
Break-even point in =
total dollar sales Overall CM ratio
$598,500
= = $950,000 in sales
0.63
3. The additional contribution margin from the additional sales is computed
as follows:
$50,000 × 63% CM ratio = $31,500
Assuming no change in fixed expenses, all of this additional contribution
Exercise 3-16 (30 minutes)
1. Variable expenses: $60 × (100% – 40%) = $36.
2.
a.
Selling price ……………………..
$60
100%
Variable expenses ……………..
36
60%
Contribution margin …………..
$24
40%
Let Q = Break-even point in units.
Profit
=
Unit CM × Q − Fixed expenses
$0
=
($60 − $36) × Q − $360,000
$0
=
($24) × Q − $360,000
$24Q
=
$360,000
Q
=
$360,000 ÷ $24 per unit
Q
=
15,000 units
CM ratio × Sales − Fixed expenses
0.40 × Sales − $360,000
0.40 × Sales
$360,000
$360,000 ÷ 0.40
$900,000
Unit CM × Q − Fixed expenses
$450,000
Exercise 3-16 (continued)
3.
a.
Fixed expenses
Unit sales =
to break even Unit contribution margin
= $360,000 ÷ $24 per unit = 15,000 units
Exercise 3-17 (20 minutes)
Total
Per Unit
1.
Sales (30,000 units × 1.15 = 34,500 units) ..
$172,500
$5.00
Variable expenses ………………………………..
103,500
3.00
Contribution margin ………………………………
69,000
$2.00
Fixed expenses ……………………………………
50,000
Net operating income …………………………...
$ 19,000
2.
Sales (30,000 units × 1.20 = 36,000 units) ..
$162,000
$4.50
Variable expenses ………………………………..
108,000
3.00
Contribution margin ………………………………
54,000
$1.50
Fixed expenses ……………………………………
50,000
Net operating income …………………………...
$ 4,000
3.
Sales (30,000 units × 0.95 = 28,500 units) ..
$156,750
$5.50
Variable expenses ………………………………..
85,500
3.00
Contribution margin ………………………………
71,250
$2.50
Fixed expenses ($50,000 + $10,000) ……….
60,000
Net operating income …………………………...
$ 11,250
4.
Sales (30,000 units × 0.90 = 27,000 units) ..
$151,200
$5.60
Variable expenses ………………………………..
86,400
3.20
Contribution margin ………………………………
64,800
$2.40
Fixed expenses ……………………………………
50,000
Net operating income …………………………...
$ 14,800
