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3 years ago

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In 2019, Ivanhoe Company had a break-even point of $385,000 based on a selling price of $7 per unit and fixed costs of $115,500.

In 2020, the selling price and the variable costs per unit did not change, but the break-even point increased to $454,000.
Required:
a. Compute the variable costs per unit and the contribution margin ratio for 2019.
b. Compute the increase in fixed costs for 2020.

1 answer:

ANTONII [103]3 years ago

5 0

Answer:

Results are below.

Explanation:

Giving the following information:

2019:

Break-even point= $385,000

Selling price= $7

Fixed costs= $115,500

2020:

Break-even point= $454,000

<u>First, we need to calculate the contribution margin ratio for 2019. We will use the following formula:</u>

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

385,000 = 115,500 / contribution margin ratio

contribution margin ratio*385,000 = 115,500

contribution margin ratio= 0.3

<u>Now, we can determine the unitary variable cost:</u>

contribution margin ratio= unitary contribution margin / selling price

0.3 = (7 - unitary variable cost) / 7

2.1 = 7 - unitary variable cost

unitary variable cost= $4.9

<u>Finally, we can determine the fixed costs for 2020 and the net increase with 2019:</u>

<u></u>

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

454,000= fixed costs / 0.3

$136,200 = fixed costs

Increase= 136,200 - 115,500= $20,700

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Read 2 more answers

Your company, which has a MARR of 12%, is considering the following two investment alternatives:

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future worth:

project A 11,615.26

project B 12,139.18‬

It should choose project B as their future value is greater

IRR of project A: 13.54%

We should remember that the IRR is the rate at which the net value is zero thus, equals the inflow with the cash outlay

It is calculate with excel or financial calculator due to the complex of the formula.

Explanation:

Project A

We calculate the future value of the cash flow per year and cost as we are asked for future value. The salvage value is already at the end of the project life so we don't adjust it.

Revenues future value

$C \times \frac{(1+r)^{time} -1}{rate} = FV\\$

C 15,000

time 8

rate 0.12

$15000 \times \frac{(1+0.12)^{8} -1}{0.12} = FV\\$

FV $184,495.3970

Expenses future value

$C \times \frac{(1+r)^{time} -1}{rate} = FV\\$

C 3,000

time 10

rate 0.12

$3000 \times \frac{(1+0.12)^{10} -1}{0.12} = FV\\$

FV $52,646.2052

Cost future value

$Principal \: (1+ r)^{time} = Amount$

Principal 40,000.00

time 10.00

rate 0.12000

$40000 \: (1+ 0.12)^{10} = Amount$

Amount 124,233.93

Net future worth:

-124,233.93 cost - 52,646.21 expenses + 184,495.40 revenues + 4,000 salvage value

future worth 11,615.26

Project B

cost:

$Principal \: (1+ r)^{time} = Amount$

Principal 60,000.00

time 10.00

rate 0.12000

$60000 \: (1+ 0.12)^{10} = Amount$

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$C \times \frac{(1+r)^{time} }{rate} = FV\\$

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rate 0.12

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we write the time and cash flow for each period.

Time Cash flow

0 -40,000

1 -3,000

2 -3,000

3 12,000

4 12,000

5 12,000

6 12,000

7 12,000

8 12,000

9 12,000

10 16,000

IRR 13.54%

Then we write on excel the function =IRR(select the cashflow)

and we got the IRR of the project

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