Question

Allison Cobb sells homemade knit scarves for $ 25 each at local craft shows. Her contribution margin ratio is 60​%. ​Currently, the craft show entrance fees cost Allison $ 900 per year. The craft shows are raising their entrance fees by 10​% next year. How many extra scarves will Allison have to sell next year just to pay for rising entrance fee​ costs? Begin by identifying the general formula to compute the breakeven sales in units.

Answer 1

Answer:  Break-Even point ( in units)= Fixed Costs ÷ (Sales price per unit – Variable costs per unit)

Allison will have to sell 6 extra scarves next year just to pay for rising entrance fee​ costs.

Explanation:

Formula :

Break-Even point ( in units)= Fixed Costs ÷ (Sales price per unit – Variable costs per unit)

Given, Price of knit scarves = $25

Contribution margin ratio = 60%

Contribution margin per unit = (Price of knit scarves) x (Contribution margin ratio )

= $(25 x 0.60 )

= $15

Current entrance fees = $900

Percentage in increase in entrance fees = 10​%

Increase in entrance fees = 10% of  $900 = $90

Extra scarves to be sold $=\dfrac{\text{Increase in extrnace fees}}{\text{Contribution margin per unit}}$

$\\\\=\dfrac{90}{15}=6$

Allison will have to sell 6 extra scarves next year just to pay for rising entrance fee​ costs.