Answer:
1. Break-even in units is 150 units
2. Break-even in dollars is $60,000
3. Contribution Income Statement for 130 units
Marlin Motors
Income Statement
For the month ended November 30
Sales revenue (130 x 400) $52,000
Variable cost (130 x 160) (20,800)
Contribution margin $31,200
Fixed cost (36,000)
Loss $4,800
4. Units to sell is 350
5. Dollars sale is $140,000
6. Contribution Income Statement for $200,000 sales revenue
Marlin Motors
Income Statement
For the month ended February
Sales revenue (500 x 400) $200,000
Variable cost (500 x 160) (80,000)
Contribution margin $120,000
Fixed cost (36,000)
Profit $84,000
Explanation:
1. To compute the Break-even point in units,
Formula is BEP = total fixed cost / unit contribution margin
Step 1. Compute the unit contribution margin
Unit selling price $400
Less : variable cost 160
Unit contribution margin $240
Step 2. compute the unit break-even in units using the formula.
BEP = total fixed cost / unit contribution margin
BEP = $36,000 / 240
BEP = 150 units
2. To compute the Break-even point in dollars,
Formula is BES = total fixed cost / contribution margin ratio
Step 1. Compute the contribution margin ratio
Unit selling price $400
Less : variable cost 160
Unit contribution margin $240
So, $240 divided by $400 equals 60% (CMR)
Step 2. compute the unit break-even in dollars using the formula.
BEP = total fixed cost / contribution margin ratio
BEP = $36,000 / 60%
BEP = $60,000
3. To prepare the contribution margin income statement, we will multiply the units sold of 130 units by $400 unit selling price to get the sales revenue. Then multiply 130 units by $160 to get the variable cost. Further illustration below;
Sales revenue (130 x 400) $52,000
Variable cost (130 x 160) (20,800)
Contribution margin $31,200
Fixed cost (36,000)
Loss $4,800
4. To compute the units to sell to realize the target profit we will use the formula:
(Total fixed cost + Target profit )/ unit contribution margin
Step 1. Compute the unit contribution margin
Unit selling price $400
Less : variable cost 160
Unit contribution margin $240
Step 2. compute the units to sell using the formula.
(Total fixed cost + target profit) / unit contribution margin
($36,000 + $48,000) / 240
Answer is 350 units
5. To compute the sales in dollars to realize the target profit of $48,000,
Formula is (Total fixed cost + target profit) / contribution margin ratio
Step 1. Compute the contribution margin ratio
Unit selling price $400
Less : variable cost 160
Unit contribution margin $240
So, $240 divided by $400 equals 60% (CMR)
Step 2. compute the target sales in dollars using the formula.
(Total fixed cost + target profit) / contribution margin ratio
($36,000 + $48,000) / 60%
$84,000 / 60%
Answer is $140,000
6. Contribution Income Statement for $200,000 sales revenue. FIRST we must determine how many unit are sold to have that sales revenue. $200,000 sales revenue divided by unit selling price of $400 equals 500 units. To further illustrate, see presentation below.
$200,000 / $400 = 500 units
Marlin Motors
Income Statement
For the month ended February
Sales revenue (500 x 400) $200,000
Variable cost (500 x 160) (80,000)
Contribution margin $120,000
Fixed cost (36,000)
Profit $84,000
