Question

Break-Even Units, Contribution Margin Ratio, Multiple-Product Breakeven, Margin of Safety, Degree of Operating Leverage Jellico Inc.'s projected operating income (based on sales of 450,000 units) for the coming year is as follows: Total Sales $ 12,150,000 Total variable cost 6,925,500 Contribution margin $ 5,224,500 Total fixed cost 3,242,673 Operating income $ 1,981,827 Required: 1(a). Compute variable cost per unit. Enter your answer to the nearest cent. $ per unit 1(b). Compute contribution margin per unit. Enter your answer to the nearest cent. $ per unit 1(c). Compute contribution margin ratio. % 1(d). Compute break-even point in units. units 1(e). Compute break-even point in sales dollars. $ 2. How many units must be sold to earn operating income of $426,087

Answer 1

Answer:

Instructions are below.

Explanation:

Giving the following information:

Units sold= 450,000

Total Sales= $12,150,000

Total variable cost= $6,925,500

Total fixed cost= $3,242,673

First, we need to calculate the unitary selling price and variable cost. Then, we calculate the contribution margin.

Selling price= 12,150,000/450,000= $27

Unitary variable cost= 6,925,500/450,000= $15.39

Contribution margin per unit= 27 - 15.39= $11.61

To calculate the contribution margin ratio, we need to use the following formula:

Contribution margin ratio= contribution margin/ selling price

Contribution margin ratio= 11.61/27

Contribution margin ratio= 0.43

To calculate the break-even point both in units and dollars, we need to use the following formulas:

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units= 3,242,673 / 11.61= 279,300 units

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 3,242,673/0.43= $7,541,100

Finally, we need to incorporate the desired profit to the break-even point formula:

Break-even point in units= (3,242,673 + 426,087) / 11.61

Break-even point in units= 316,000 units