Answer:
a. Assume that only one product is being sold in each of the four following case situations:
Case #1 Case #2 Case #3 Case #4
Unit sold 15,000 <u>4,000</u> 10,000 6,000
Sales 180,000 100,000 <u>$200,000</u> 300,000
Var. expenses 120,000 <u>$60,000</u> 70,000 <u>$210,000</u>
Fixed expenses 50,000 32,000 <u>$118,000</u> 100,000
Net income <u>$10,000</u> 8,000 12,000 (10,000)
Contribution <u>$4</u> 10 13 <u>$15</u>
margin per unit
contribution margin per unit = sales price per unit - variable costs per unit
b. Assume that more than one product is being sold in each of the four following case situations:
Case #1 Case #2 Case #3 Case #4
Sales 500,000 400,000 <u>$250,000</u> 600,000
Var. expenses <u>$400,000</u> 260,000 <u>$100,000</u> 420,000
Fixed expenses <u>$93,000</u> 100,000 130,000 <u>$185,000</u>
Net income 7,000 <u>$40,000</u> 20,000 (5,000)
Contribution 20% <u>35%</u> 60% <u>30%</u>
margin ratio (percent)
contribution margin ratio = (sales revenue - variable costs) / sales revenue