Question

PB4.

Answer 1

Answer:

The question is incomplete, the complete question is given below.

                                $

Sales price               150

Variable cost              80

Fixed expenses 42,000

Answer:

1. Break-even point (in units) =  600 units
2. Break-even point (sales) = $90,000
3. Contribution  margin ratio = 46.6%
4. Units to be sold to achieve a profit of $21,000 :900 units
5. Contribution margin income  statement (see below)

                    West Island

Contribution margin income statement

Sales ( $150 900)                            135,000

less variable costs($80 × 900)        ( 72,000)

Contribution                                       63,000

Less fixed cost                                  (42,000)

Profit                                                   21,000

Explanation:

Break-even point is the level of activity where a business makes no profit or loss. The number of units to be produced which equates the total cost to total revenue.

It is calculated as ;

Break-even point (in units)=Total general fixed cost/ (selling price per  - Variable cost)

Break-even point (sales) = Break-even point (units)× units price

So for West Island, we do as follows:

Break-even point (in units) = $42,000/$(150-80)= 600 units

Break-even point (sales) =   600 × $150 = $90,000

Contribution margin ratio(C.M.R) is the proportion of sales made as contribution. It is determined as contribution/sales revenue.

To calculate the total contribution at the break-even, we just multiply the contribution per unit by the break-even point (units)

Contribution at the break-even point= (150-80) × 600=$42,000

Contribution  margin ratio = 42,000/(600*150)= 46.6%

Units to be sold to achieve target profit= (Fixed cost + target profit)/ (S.P- V.C)

Therefore to earn a profit of $21,000., West Island will have to sell:

$(42,000 + 21,000)/$(150-80) = 900 units

                                                    West Island

Contribution margin income  statement

Sales ( $150 900)                            135,000

less variable costs($80 × 900)        ( 72,000)

Contribution                                       63,000

Less fixed cost                                  (42,000)

Profit                                                   21,000

This confirms our answer !