Answer:
(i) $0.26
(ii) 43.33%
(iii) 657,692.31 units
(iv) 3,420,000
Explanation:
Given that,
Selling price = $0.60
Variable cost per unit = $0.34
Total fixed costs = $171,000
(i) contribution margin per unit = Selling price - Variable cost per unit
= $0.60 - $0.34
= $0.26
(ii) contribution margin ratio:
= (contribution margin ÷ Selling price) × 100
= ($0.26 ÷ $0.6) × 100
= 43.33%
(iii) Break-even point in units:
= Total Fixed cost ÷ contribution margin
= (171,000 ÷ 0.26)
= 657,692.31 units
(iv) If an increase in chocolate prices causes the variable cost per unit to increase to $0.55.
contribution margin per unit = Selling price - Variable cost per unit
= $0.60 - $0.55
= $0.05
New Break-even point in units:
= Total Fixed cost ÷ contribution margin
= (171,000 ÷ 0.05)
= 3,420,000 units
Therefore, there is an increase in the break-even units or more units have to be sold to cover the variable and fixed cost.