Question

8. In the month of September, Matlock Industries sold 800 units of product. The average sales price was $30. During the month, fixed costs were $6,300 and variable costs were 70% of sales. Instructions (a) Determine the contribution margin in dollars, per unit, and as a ratio. (b) Using the contribution margin technique, compute the break-even point in dollars and in units.

Answer 1

Answer:

(a) $9; 30%

(b) $21,000; 700 units

Explanation:

Given that,

Units sold = 800

Average sales price = $30

Fixed costs = $6,300

Variable costs = 70% of sales

(a) Contribution margin per unit:

= Selling price per unit - Variable cost per unit

= $30 - (70% × $30)

= $30 - $21

= $9

Contribution margin ratio:

= Contribution margin per unit ÷ Selling price

= $9 ÷ $30

= 30%

(b) Break-even sales (in dollars):

= Fixed costs ÷ Contribution margin ratio

= $6,300 ÷ 30%

= $21,000

Break-even sales (in units):

= Fixed costs ÷ Contribution margin per unit

= $6,300 ÷ $9

= 700 units