Answer:
The question is incomplete, the complete question is given below.
$
Sales price 150
Variable cost 80
Fixed expenses 42,000
Answer:
- Break-even point (in units) = 600 units
- Break-even point (sales) = $90,000
- Contribution margin ratio = 46.6%
- Units to be sold to achieve a profit of $21,000 :900 units
- Contribution margin income statement (see below)
West Island
Contribution margin income statement
Sales ( $150 900) 135,000
less variable costs($80 × 900) <u> ( 72,000)</u>
Contribution 63,000
Less fixed cost <u>(42,000)</u>
Profit <u>21,000</u>
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) <u> ( 72,000)</u>
Contribution 63,000
Less fixed cost <u>(42,000)</u>
Profit <u>21,000</u>
This confirms our answer !
