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B. Ex. 20.3
(continued) b.
B. Ex. 20.4 a.
c. $ 6,000
Unit Contribution Margin Unit Sales Price Variable Cost per Unit
Fixed element of room service costs …………………………
[or 80,000 units (part b) x ($60 unit sales price (part a) = $4,800,000]
b.
The overall cost of responding to emergency calls is semivariable—that
is, it includes both fixed and variable elements. Therefore, when the
Contribution margin ratio 60% (100%, minus variable costs of 40%)
Fixed Costs + Target Profit
Contribution Margin Ratio
Break-Even Sales Volume
B. Ex. 20.6 a.
B. Ex. 20.7 a. $ 4,500,000
30%
$ 1,350,000
b. $9,000 operating income) ÷ 40%]
Break-even sales volume ($60 × 75,000 units) …………
Contribution margin ratio ……………………………….
Fixed costs ($4,500,000 × 30%) …………………………….
[($2,400 additional cost + $1,200 target
b.
=
Break-Even Sales Volume
Fixed Costs
CM ratio
If variable costs are 60% of sales revenue, the contribution
margin ratio must be (100% - 60%) = 40%
B. Ex. 20.9
B. Ex. 20.10 a. Contribution Percentage of Average
Margin Ratio × Total Sales = Contribution
Passenger miles driven
Machine hours
Number of cases
McCauley & Pratt, Attorneys at Law Billable client hours
Susquehanna Trails Bus
Freeman’s Retail Floral Shop
The following activity bases could be suggested to each of your clients:
Possible Activity BasesClient Sales dollars
SOLUTIONS TO EXERCISES
Ex. 20.1 a.
b.
c.
(2)
320,000$
240,000
$ 80,000
b.
$ 80,000
180,000
$ 260,000
c. February March
$ 208,000
$ 276,000
224,000 264,000
Break-even point
Fixed costs
Relevant range
Estimated manufacturing overhead:
Total estimated manufacturing overhead …….
$40 per machine hour) ………..…………………
Fixed element of manufacturing overhead …...….
Estimated manufacturing overhead at activity level
Fixed element [part a (2) ] …………………………..
of 4,500 machine hours:
machine-hour level (6,000 machine hours ×
at 6,000 machine-hour level ……………………….
Variable element of manufacturing overhead at 6,000
Total manufacturing overhead
Actual manufacturing overhead ….....……
February:
March:
$80,000 + ($40 per MH × 4,900 MH) .....
$80,000 + ($40 per MH × 3,200 MH) …....
Variable cost element ($40 per machine hour
× 4,500 machine hours) …...……………………
Ex. 20.4 a. Product 1 Product 2
60% 20%
× 30% × 70%
18% +14% = 32%
Contribution margin ratio
Relative sales mix ………
Ex. 20.6
Ex. 20.7
It is never ethical to lie to one’s employees. This type of behavior will only serve
=a. Contribution Margin Ratio Unit Sales Price - Variable Cost per Unit
Unit Sales Price
= $1,350,000 × 80% = $1,080,000
a.
220,000$
Ad Campaign Ordering
System
(1)
b.
Ex. 20.8
($1,200,000 x 1.05)
For the ad campaign to result in an equal increase in operating income, the total
contribution margin produced must equal that of the ordering system ($360,000).
Projected operating Income without either investment:
($1,200,000 × 0.25) - $80,000
Sales Revenue x 25% = $360,000
a. $ 1.75
($1.75 × $40,000 units) 70,000
Margin o
f
sa
f
et
y
8,750$
c. Sales revenue ($1.75 × 38,000 units) 66,500$
Ex. 20.9
Contribution margin per unit:
Unit sale price
Estimated operating loss at sales level of 38,000 units:
Ex. 20.10 a.
$45 - $27
$45
Ex. 20.11 a. 20$ (6)
(2)
12$
÷ $12
75,000
b. 60%
900,000$
1,200,000
2,100,000$ ÷ 60%
3,500,000$
c. 900,000$ ÷ 60%
1,500,000$
2,500,000$
(1,500,000) 1,000,000$
Margin of safety …………………………………………………
Total fixed costs …………………………………………………
Target monthly income …………………………………………
Divided by contribution margin ratio ………………………….
Sales revenue required …………………………………………
Total fixed costs …………………………………………………
Monthly break-even sales revenue ……………………………
Monthly break-even sales revenue ……………………………
Current monthly sales level ……………………………………
Contribution margin ratio ………………………………………
Divided by contribution margin per unit ………………………
Monthly break-even in units ……………………………………
Contribution margin ratio (CM ÷ SP) …………………………..
Selling price per unit ……………………………………………
Variable manufacturing costs per unit………………………….
Variable selling and administrative costs per unit ……………
Contribution margin per unit……………………………………
=
Contribution Margin
Ratio Unit Sales Price - Variable Costs
Sales Price
=
= 40%
Ex. 20.12 20,000 units x $7 per unit = $140,000 total fixed costs
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Ex. 20.13 a. The lowest bid price required to maintain the current
level of operating income equals total variable cost
per unit:
9$
Direct materials ………………………………………………..
