Answer:
a) CMR= 0.6
b)CVP=0.6-$1,000
c) Profit= $5000
d) Sales $10,000
e) Break-even=$3000
f) Profit increases =$600
Explanation:
a) contribution margin ratio formula is
(Total revenue -variable cost )/Total revenue
=($5,000-$2,000)/$5,000= 0.6
b) CVP relation: profit as a function of sales revenue
Version 2:
Profit = CMR × Revenue – FC
where
CMR = contribution margin ratio (contribution per $ of sales)
Revenue = sales revenue in $
FC = fixed costs
That means
Profit = 0.6*Revenue-$1,000
c)profit = 0.6*$10,000-$1,000
profit = $6000-$1,000
profit =$5000
d)
profit = 0.6*Revenue-$1,000
Revenue =(profit +$1,000)/0.6
Revenue = ($5,000 +$1,000)/0.6= 10000
e)Break even is when sales are equal to the cost.
sales revenue=variable costs+fixed costs
sales revenue=$2,000+$1,000
Break-even=$3000
f)profit increases
profit increases =0.6*Revenue-$1,000
profit increases =0.6*$1,000=$600
