E16-32.
Once the following, or a similar, format is established, each case is solved by filling in the g
Case A Case B Case C Case D
Unit sales 2,500 1,600 8,600* 6,000*
Sales
$80,000 $4,800 $382,700 $240,000
revenue
Variable
costs:
Unit cost $20 $2 $24 $10.00
Unit sales x 2,500 x 1,600 x 8,600* x 6,000
Total -50,000 -3,200 -206,400 -60,000
Contribution
$30,000 $1,600 $176,300 $180,000
margin
Fixed costs -14,000 -700 -164,000 -120,000
Net income $16,000 $900 $ 12,300# $60,000#
Unit cont.
margin:
Cont. margin $30,000 $1,600 $176,300 $180,000
Unit sales ¸ 2,500 ¸ 1,600 ¸ 8,600 ¸ 6,000
Unit
$12.00 $1 $20.50 $30
contribution
Break-even
point:
Fixed costs $14,000 $700 $164,000 $120,000
Unit cont.
¸ $12.00 ¸ $1 ¸ $20.5 ¸ $30
margin
Unit break-
1,167## 700 8,000 4,000
even point
Margin of
safety (unit
sales less 1,333 900 600 2,000
unit break-
even point)
*Solved as the unit break-even point plus the margin of safety.
#Solved as the unit contribution margin times margin of safety.
##Rounded UP to the nearest whole unit.
case is solved by filling in the given information and working toward the unknowns.
A
Unit sales 2,500
Sales revenue 80,000
Variable cost, per unit 20
Contribution margin 30,000
Fixed costs, amount 14,000
Net income 16,000
Unit Contribution margin 12
Break-even point, units 1,167
Total costs, amount
Variable cost, amount 50,000
he unknowns.
B
1,600
4,800
2
1,600
700
900
1
700
3,200
E16-33.
Once the following or similar format is established, each case can be solved by filling in the kn
Case 1 Case 2 Case 3 Case 4
Sales
$90,000 $150,000 $160,000 $275,000*
revenue
Cont. margin
x 0.50 x 0.60 x 0.25 x 0.40
ratio
Contribution
$45,000 $90,000 $40,000 $110,000
margin
Fixed costs -30,000 -75,000 -16,000 -60,000
Net income $15,000 $15,000 $24,000 $50,000
Variable cost
0.50 0.40 0.75 0.60
ratio
Contribution
0.50 0.60 0.25 0.40
margin ratio
Total 1.00 1.00 1.00 1.00
Break-even
point:
Fixed
$30,000 $75,000 $16,000 $60,000
costs
Cont.
marg. ÷ 0.50 ÷ 0.60 ÷ 0.25 ÷ 0.40
ratio
Dollar break-
$60,000 $125,000 $64,000 $150,000
even point
Margin of
safety (dollar
sales less $30,000 $25,000 $96,000 $125,000
dollar break-
even point)
*Computed as the break-even point plus the margin of safety.
d by filling in the known amounts and working toward the unknowns.
Variable cost, amount
Unit sales
Variable cost, per unit
Unit Contribution margin
Sales revenue 90,000 150,000 160,000
Contribution margin, amount 45,000 90,000 40,000
Fixed costs, amount 30,000 75,000 16,000
Net income 15,000 15,000 24,000
Variable cost ratio 0.5 0.4 0.75
Contribution margin ratio 0.5 0.6 0.25
Break-even point, dollars 60,000 125,000 64,000
Total costs
Variable cost, amount 45,000 60,000
P16-37.
a.
Prior to solving this problem, it is necessary to determine the variable costs per unit, the fixed
Using the high-low method:
Variable costs per unit = ( = $ 6.40
Fixed costs = $105,000 -= $ 45,000
or, = $85,000 - = $ 45,000
Unit selling price = $100,000 / 6,250 = $ 16.00
Unit contribution margin = $16 - $6.40 $ 9.60
Break-even point = $45,000 / $9.60 = 4,688 (rounded up)
b.
Sales volume required to earn a profit of $25,000:
($45,000 + $25,000) / $9.60 = 7,292 (rounded up)
s per unit, the fixed costs per year, and the unit selling price.
1
20,000
3125
Variable costs per unit 6.40
Variable cost amount 40,000
Fixed cost amount 45,000
Selling price per unit 16.00
Contribution margin per unit 9.60
Break-even 4,688
70,000
Required sales volume 7,292
P16-38.
a.
Contribution ratio = 1.0 - 0.55 = 0.45
Break-even point = $1,560,000 / 0.45 =
b.
Required sales volume = ($1,560,000 + $1,250,000) / 0.45 =
c.
Profits of automation =
(1 - 0.50)X - ($1,560,000 + $250,000) =
0.50X - $1,810,000 =
0.10X =
X =
d.
Automation
Strength:
It will provide higher profits if sales increase.
It may provide new opportunities and is preferred at the
current sales volume.*
It may enhance quality.
Weakness:
This alternative has higher risk and a higher break-even
point.
* Automation shows the highest profit at the current sales volume.
Current
$ 5,800,000
(3,190,000)
(1,560,000)
$ 1,050,000
$ 3,466,667 (rounded up)
$ 6,244,445 (rounded up)
Profits of outsourcing
(1 - 0.60)X - ($1,560,000 - $250,000)
0.4X - $1,310,000
$500,000
$5,000,000
Outsourcing
Strength:
This alternative has less risk and a
lower break-even point.
It allows focusing on core
competencies.
Weakness:
This alternative will not have as great
a potential for high profits.
It provides less control of operations.
sales volume.
Automation Outsourcing
$ 5,800,000 $ 5,800,000
(2,900,000) (3,480,000)
(1,810,000) (1,310,000)
$ 1,090,000 $ 1,010,000
Sales revenue 5,800,000
Fixed costs 1,560,000
Variables cost ratio 0.55
Variables cost 3,190,000
Contribution ratio 0.45
a Break-even amount 3,466,667
b Target dollar sales volume 6,244,444
A
