Questions: The total revenue by Dell for the financial year after looking at the management discussion and analysis of the financial statements was $56,940. Assume that $3 billion of operating expense in addition to the depreciation and amortization are all the fixed expenses, Compute the average variable cost of goods sold percentage. Compute the average contribution margin percentage. What would be the break-even sales dollars under this scenario?
Here is what I have come up with. I have found tons of answers but they are all the same and don't make sense to me as operating expenses and amortization are fixed and not variable cost.
By looking at the Consolidated Statement of operation, the cost of goods sold of Dell was $44,754 million and the selling, administrative and engineering expenses were $9,174 million. In addition, the depreciation and amortization for 2013 was of $1,144 million. Assuming that dell has $3 billion (3,000 millions) of operating income, I came up with the numbers below:
Variable Cost of Goods Sold = Cost of Goods Sold + Variable Cost â Fixed Cost = 44,754 + 53,928 â 4,144 = $94,538 USD
Average variable cost of goods sold % = Variable Cost of Goods Sold /Sales Revenue = 94,538 / $56,940 = ???
Average contribution margin = Sale price â Variable costs = Sales Price â (cost of goods sold + adm expenses + engineering expenses) = $56,940 â (44,754 + 9,174) = 56,940 â 53,928 = $3,012 USD average contribution margin
Contribution Margin Ratio = Contribution Margin / Sales Price = 3,012 / 56,940 = 5.289 %
Break-Even Sales in units = Fixed Expenses / Contribution Margin Ratio = ($3,000 + $1,144) / 5.289% = $4,144 / 5.289% = $78,351.29 units.
Questions: The total revenue by Dell for the financial year after looking at the management discussion and analysis of the financial statements was $56,940. Assume that $3 billion of operating expense in addition to the depreciation and amortization are all the fixed expenses, Compute the average variable cost of goods sold percentage. Compute the average contribution margin percentage. What would be the break-even sales dollars under this scenario?
Here is what I have come up with. I have found tons of answers but they are all the same and don't make sense to me as operating expenses and amortization are fixed and not variable cost.
By looking at the Consolidated Statement of operation, the cost of goods sold of Dell was $44,754 million and the selling, administrative and engineering expenses were $9,174 million. In addition, the depreciation and amortization for 2013 was of $1,144 million. Assuming that dell has $3 billion (3,000 millions) of operating income, I came up with the numbers below:
Variable Cost of Goods Sold = Cost of Goods Sold + Variable Cost â Fixed Cost = 44,754 + 53,928 â 4,144 = $94,538 USD
Average variable cost of goods sold % = Variable Cost of Goods Sold /Sales Revenue = 94,538 / $56,940 = ???
Average contribution margin = Sale price â Variable costs = Sales Price â (cost of goods sold + adm expenses + engineering expenses) = $56,940 â (44,754 + 9,174) = 56,940 â 53,928 = $3,012 USD average contribution margin
Contribution Margin Ratio = Contribution Margin / Sales Price = 3,012 / 56,940 = 5.289 %
Break-Even Sales in units = Fixed Expenses / Contribution Margin Ratio = ($3,000 + $1,144) / 5.289% = $4,144 / 5.289% = $78,351.29 units.
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Related questions
Reshier Company makes three types of rug shampooers. Model 1 is the basic model rented through hardware stores and supermarkets. Model 2 is a more advanced model with both dry-and wet-vacuuming capabilities. Model 3 is the heavy-duty riding shampooer sold to hotels and convention centers. A segmented income statement is shown below.
| Model 1 | Model 2 | Model 3 | Total | ||||||
| Sales | $270,000 | $598,000 | $606,500 | $1,474,500 | |||||
| Less variable costs of goods sold | (89,500) | (163,640) | (352,800) | (605,940) | |||||
| Less commissions | (6,000) | (27,500) | (20,250) | (53,750) | |||||
| Contribution margin | $174,500 | $406,860 | $233,450 | $814,810 | |||||
| Less common fixed expenses: | |||||||||
| Fixed factory overhead | (410,000) | ||||||||
| Fixed selling and administrative | (299,000) | ||||||||
| Operating income | $105,810 | ||||||||
While all models have positive contribution margins, Reshier Company is concerned because operating income is less than 10 percent of sales and is low for this type of company. The companyâs controller gathered additional information on fixed costs to see why they were so high. The following information on activities and drivers was gathered:
| Driver Usage by Model | ||||||||||||||||
| Activity | Activity Cost | Activity Driver | Model 1 | Model 2 | Model 3 | |||||||||||
| Engineering | $76,000 | Engineering hours | 710 | 71 | 219 | |||||||||||
| Setting up | 177,000 | Setup hours | 12,300 | 12,700 | 29,219 | |||||||||||
| Customer service | 112,000 | Service calls | 14,300 | 1,580 | 19,219 | |||||||||||
| Which alternative is more cost effective and by how much? (Assume that any traceable fixed costs can be avoided.) Do NOT round interim calculations and, if required, round your answer to the nearest dollar. 1. Dropping Model 1 will add $ ______ to operating income What if Reshier Company can only avoid 186 hours of engineering time and 5,350 hours of setup time that are attributable to Model 1? How does that affect the alternatives presented in Requirement 2? Which alternative is more cost effective and by how much? Do NOT round interim calculations and, if required, round your answer to the nearest dollar. 2. Keeping Model 1 will add $_______ to operating income | |
