ACCT 1B Lecture Notes - Lecture 8: Contribution Margin, Earnings Before Interest And Taxes, Fixed Cost

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rosebuffalo981

16 Jul 2020

School

Irvine Valley College

Department

Accounting

Course

ACCT 1B

Professor

seilo

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Document Summary

Units to be sold to achieve a target income. Operating income = (price x units sold) (unit variable cost x units sold) fixed cost. Or number of units to earn a target income = fixed cost + target income/ price-variable cost per unit. Sales dollars to earn target income = fixed cost + target income/ contributed margin ratio. In general, assuming that fixed costs remain unchanged, the contribution margin ratio can be used to find the profit impact of a change in sales revenue. Sales revenue to achieve a target income as percentage of sales. Unit sales to achieve target profit = fixed cost + (percent of sales revenue x sales revenue) / (contribution margin per unit) To prove, revenue variable cost fixed cost = operating income. Sales = fc + ni/ (1-t) all divided by cm, A profit-volume graph visually portrays the relationship between profits (operating income) and units sold.

Related Questions

Calculate the missing amounts for each columnm

NUmber of units	2900 units	14540 units	4620 units
sale price per unit	360	4600	5500
variable cost per unit	270	2760	1665
total fixed cost	81000	828000	5244750
target profit	180,000	27,600,000	12,703,960

Contributution margin per unit
contribution margin ratio
required units to achieve target profit
required units to break even
required sales dollars to break even

brownfish256

The Hampshire Company manufactures umbrellas that sell for$12.50 each. In 2014, the company made and sold 60,000 umbrellas.The company had fixed manufacturing costs of $216,000. It also hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:

Direct Materials: $3.00

Direct Labor: $1.50

Variable Manufacturing Overhead: $0.40

Variable Selling Expenses: $1.10

Using the information above, perform a cost-volume-profit (CVP)analysis by completing the steps below.

1. Compute net income before tax.

2. Compute the unit contribution margin in dollars and thecontribution margin ratio for one umbrella.

3. Calculate the break-even point in units and dollars ofrevenue.

4. Calculate the margin of safety:

In units

In sales dollars

As a percentage

5. Calculate the degree of operating leverage.

6. Assume that sales will increase by 20% in 2015. Calculate thepercentage of before-tax income for this increase. Providecalculations to prove that your percentage increase is correctbased on the operating leverage calculated in step 5.

7. Compute the number of umbrellas that Hampshire is required tosell if it plans to earn $150,000 in income before taxes by usingthe target income formula. Proof your calculation.

8. A company that specializes in tours in England has offered topurchase 5,000 umbrellas at $11 each from Hampshire. The variableselling costs of these additional units will be $1.30 as opposed to$1.10 per unit. Also, this production activity will incur another$15,000 of fixed administrative costs. Should Hampshire agree tosell these additional 5,000 umbrellas to the touring business?Provide calculations to support your decision.

Requirement 1
	Units	Price	Totals
Sales	X	$	$
Variable Costs	X	$	$
Fixed Costs			$
Net Income			$

Requirement 2

Contribution Margin per Unitin Dollars = Selling Price â Variable Costs

Selling Price		Variable Costs	Contribution Margin per Unit



Contribution Margin Ratio =Contribution Margin/Selling Price

Contribution Margin		Selling Price	Contribution Margin Ratio


Requirement 3

Break-Even Point = Fixed Costs/ Contribution Margin

Fixed Costs		Contribution Margin	Break-Even Point in Units (Rounded)


Break-Even Point in Units XSelling Price per Unit = Break-Even Point Sales

Break-Even Point in Units		Selling Price per Unit	Break-Even Point in Sales (Rounded)


Requirement 4A

Margin of Safety in Units =Current Unit Sales â Break-Even Point in Unit Sales

Current Unit Sales		Break-Even Point in Sales	Margin of Safety in Units


Requirement 4B

Margin of Safety in Dollars =Current Sales in Dollars â Break-Even Point Sales in Dollars

Current Sales in Dollars		Break-Even Point in Dollars	Margin of Safety in Dollars


Requirement 4C

Margin of Safety as aPercentage = Margin of Sales in Units / Current Unit Sales

Margin of Safety in Units		Current Unit Sales	Margin of Safety Percentage



Requirement 5

Degree of Operating Leverage =Contribution Margin / Operating Income

Contribution Margin		Operating Income	Operating Leverage



Requirement 6
	Units	$ Per Unit	Totals
Sales	X	$	$
Variable Costs	X	$	$
Fixed Costs			$
Net Income			$

Operating Leverage		Times % Increase	Increase would be XX%


Prior Income	$	From Part 1
Increase	$	Prior Income X XX% Above
Total	$


Requirement 7

Targeted Income = (Fixed Costs+ Target Income) / Contribution Margin

Fixed Costs + Target Income		Divided by Contribution Margin	# of Units (Rounded)
Fixed Costs	$
Target Income	$
Total	$	$	X

		# of Units Above X $ Per Unit
Proof	Revenue	XX,XXX X $XX.XX	$
	Variable Costs	XX,XXX X $X.XX	$
	Contribution Margin		$
	Fixed Costs		$
	Net Income		$


Requirement 8

Sales Mix
	Current	Specialty	Total
Expected Sales Units	X	X
Revenue = Sales X Price	$	$	$
Variable Costs X Units	$	$	$
Contribution Margin	$	$	$
Fixed Costs	$	$	$
Operating Income			$

Prior Net Income FromRequirement 1			$

Additional Operating Income	(Operating Income Above Less Prior Income)		$

Decision With Explanation

redant669

Olso company sells its product for $20 per unit. The variablecost to produce the project is $12 per unit. The fixed expensescome out to $6,000. Olso Company sold 1,00 units this period.

A) What is the Contribution Margin per unit?

B) Contribution Margin ratio?

C) If sales increase to 1,001 units, what would be the increasein net operating income?

D) If sales decline to 900 units, what would be the netoperating income?

E) If selling price increases by $2 per unit and sales volumedecreases by 100 units, what is the new net operating income?

F) What is the break-even point in unit sales (use the originaldata)?

G) Break-even in dollar sales (use the original data)?

H) How many units must be sold to achieve a target profit of$5,000 (use original data)?

I) Margin of Safety in $ (use original data)?

J) Margin of Safety in Percentage (use original data)?

peachsheep145

ACCT 1B Lecture Notes - Lecture 8: Contribution Margin, Earnings Before Interest And Taxes, Fixed Cost

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