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Ex. 20.14 a. Vests Skis Ropes
Unit selling prices $120 $300 $50
Unit variable costs (60) (210) (10)
Unit contribution margins $60 $90 $40
c.
To maximize operating income, the marketing manager should pursue a strategy
SOLUTIONS TO PROBLEMS SET A
25 Minutes, Easy
PROBLEM 20.1A
IONIC CHARGE
a. Required contribution margin per unit
Budgeted operating Income
700,000$
Fixed costs 800,000
Total required contribution margin 1,500,000$
Number of units to be produced and sold 60,000
c. Margin of safety at 60,000 units:
Sales volume at 60,000 units ($75 × 60,000 units)
4,500,000$
PROBLEM 20.1A
IONIC CHARGE (concluded)
d.
No. With a unit sales price of $60, the break-even sales volume is 80,000 units:
25 Minutes, Medium PROBLEM 20.2A
BLASTER CORPORATION
a. Sales price per unit:
Budgeted costs
2,250,000$
Add: Budgeted operating income 900,000
Budgeted sales revenue 3,150,000$
Sales price per pair ($3,150,000 ÷ 30,000 pairs) 105$
Manufacturing overhead ($24 × 25%) 6
Selling and administrative expense ($20 × 20%) 4
Total variable costs per pair 41$
(3) Contribution margin per pair of boots:
Sales price per pair
121$
Less: Variable costs per pair [from (2) ]41
Contribution margin per pair 80$
PROBLEM 20.3A
STOP-N-SHOP
a.
30 Minutes, Medium
PROBLEM 20.3A
STOP-N-SHOP (continued)
The following information is used for parts b. and c. of this problem.
Operating data:
Revenue per parking-space hour 50 cents
Variable costs per parking-space hour 5 cents
PROBLEM 20.3A
STOP-N-SHOP (concluded)
b. Contribution margin ratio:
Parking charge per hour 0.50$
Less: Variable costs per unit 0.05
Break-even sales volume:
Fixed costs:
Rent on lot ($7,250 × 12) 87,000$
Supervisor's salary 24,000
Wages ($300 × 52 × 5) 78,000
c. (1) New contribution margin ratio per parking-space hour:
New level of fixed costs:
Rent on lot ($7,250 × 12) 87,000$
Supervisor’s salary 24,000
Vacation pay ($300 × 2 × 5) 3,000
Fixed maintenance and other costs ($3,000 × 12) 36,000
Total fixed costs under new arrangement 150,000$
(2) Required sales revenue to produce desired operating
income:
Total fixed costs under new arrangement (above) 150,000$
Add: Target profit 300,000
PROBLEM 20.4A
RAINBOW PAINTS
a. Contribution margin ratio:
Unit sales price 10$
Break-even sales volume in dollars:
Fixed costs ($3,160 + $3,640 + $1,200) 8,000$
Contribution margin ratio (above) 40%
b. On the following page.
c. Projected operating income at various levels:
2,200 Gallons 2,600 Gallons
Contribution margin per gallon ($10 - $6) 4$ 4$
30 Minutes, Medium
PROBLEM 20.4A
RAINBOW PAINTS (concluded)
b.
40 Minutes, Strong
PROBLEM 20.5A
SIMON TEGUH
a. Unit contribution margin:
Sales price per unit 0.75$
Less: Variable costs per unit:
Break-even volume in units:
Monthly fixed costs:
Depreciation ($36,000 × 0.20 × 1/12) 600$
Wages 1,500
Break-even volume in dollars:
Break-even volume in units (above) 6,000
Unit sales price 0.75$
Break-even volume in dollars (6,000 units × $0.75) 4,500$
b. See following page.
c. Sales volume to produce operating income equal to 30%
return on investment:
Total monthly fixed costs (part a)2,700$
Desired operating income ($45,000 × 30% × 1/12) 1,125
PROBLEM 20.5A
SIMON TEGUH (concluded)
b.
30 Minutes, Strong PROBLEM 20.6A
PRECISION SYSTEMS
a. Variable costs per unit before 15% increase in the cost of
direct labor 60$
Increase in cost of direct labor, 15% of $20 3
Variable costs and expenses per unit
after 15% increase in the cost of direct labor 63$
Because the contribution margin ratio of 40% is required,
the variable costs of $63 per unit must equal 60%
of sales price after the wage increase.
c. Current After
Capacity Expansion
(20,000 Units) (25,000 Units)
Total contribution margin ($37 per unit) 740,000$ 925,000$
Sales volume required to maintain current operating income:
35 Minutes, Strong PROBLEM 20.7A
PERCULA FARMS
a. Raising clownfish will result in the highest
operating income.
Clownfish Angelfish
Number of salable fish 100,000 50,000
× sale price 4$ 10$
Total revenue 400,000$ 500,000$
b.
c. and d.
Operating income with new filter material:
Clownfish Angelfish
Number of salable fish 120,000 60,000
× sale price 4$ 10$
Total revenue 480,000$ 600,000$
The most important factors in determining operating income are survival rates, and the
costs of feeding and water changes.
PROBLEM 20.7A
PERCULA FARMS (concluded)
c. and d.
Operating income with new heating and lighting
equipment: Clownfish Angelfish
Number of salable fish 105,000 55,000
× sale price 4$ 10$
Total revenue 420,000$ 550,000$
PROBLEM 20.8A
LIFEFIT PRODUCTS
a. Contribution margins of product lines:
Shoes ($15 contribution margin ÷ $50 sales price) 30%
Shorts ($4 contribution margin ÷ $5 sales price) 80%
b. (1) Average contribution margin ratio:
From shoes (30% contribution margin × 80% of sales mix) 24%
(2) Monthly operating income:
Total sales 1,000,000$
Average contribution margin ratio × 40%
Total contribution margin ($1,000,000 × 40%) 400,000$
Less: Fixed costs and expenses 378,000
Operating income 22,000$
(3) Monthly break-even sales volume (in dollars):
c. Assuming new sales mix (shoes, 70%; shorts, 30%)
(1) Average contribution margin ratio:
(2) Monthly operating income:
Total sales 1,000,000$
Average contribution margin ratio × 45%
35 Minutes, Strong
PROBLEM 20.8A
LIFELIFT PRODUCTS (concluded)
d.
In the new sales mix, increased sales of shorts have replaced some sales of shoes. Shorts
SOLUTIONS TO PROBLEMS SET B
25 Minutes, Medium
PROBLEM 20.1B
NATHE, INC.
a. Required contribution margin per unit
Budgeted operating Income 200,000$
Fixed costs 600,000
Required sales price per unit:
Required contribution margin per unit 20$
c. Margin of safety at 40,000 units:
Sales volume at 40,000 units ($100 x 40,000) 4,000,000$
PROBLEM 20.1B
NATHE, INC. (concluded)
d.
Yes. With a unit sales price of $96, the break-even sales volume is 37,500 units:
