Question

Incline Company generated $4,900,000 in revenue selling 4,025 units of its only product. Each unit has a contribution margin of $280. The company has fixed costs of $125/unit at the current production volume (assume unit production volume equals unit sales volume).
a. What is the contribution margin ratio for Incline's product?
b. Calculate the break-even point in revenue for the Incline?

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

Incline Company generated $4,900,000 in revenue selling 4,025 units of its only product. Each unit has a contribution margin of $280. The company has fixed costs of $125/unit at the current production volume.

First, we need to calculate the selling price per unit:

Selling price= 4,900,000/4,025= $1,217.39

Now, we can calculate the contribution margin ratio:

Contribution margin ratio= contribution margin/ selling price

CMr= 280/1,217.39= 0.23

Finally, we can calculate the break-even point in dollars:

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

Break-even point (dollars)= (125*4,025)/0.23= $2,187,500

Answer 2

Answer: 23% ; $2,187,500

Explanation:

Given the following ;

Total revenue = $4,900,000

Total unit sold = 4025

Contribution margin = $280

Fixed cost = $125 per unit

a. Contribution margin ratio(CMR) is given by;

CMR = contribution margin ÷ price per unit

Price per unit = total revenue ÷ total unit sold

Price per unit = $4,900,000 ÷ 4025 = $1,217.39

Therefore,

CMR = ($280 ÷ 1217.39) * 100 = 23% or 0.23

B. Break even point is given by ;

Fixed cost ÷ contribution margin ratio

Total Fixed cost = fixed cost per unit × number of units

Total fixed cost = $125 × 4025 =$503,125

Break-even point(dollars) = $503,125 ÷ 0.23 = $2,187,500