ACCT 2301 Chapter Notes - Chapter 3: Weighted Arithmetic Mean, Mmix, Contribution Margin

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lilacmule890

22 Mar 2016

School

Northeastern University

Department

Accounting

Course

ACCT 2301

Professor

Dinan Edward

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Document Summary

Break even point where profit equals zero. Computed using the equation method, contribution margin per unit method, or the contribution margin ratio method. Equation method: expresses the income statement as follows (cid:1) Sales variable costs fixed costs = profit (net income) Set profit equal to zero and solve for the n in variable costs. Contribution margin per unit method: contribution margin is the amount of sales minus total variable costs. Sales price per unit - variable cost per unit. Contribution margin ratio method: both previous methods produce the break even point in units the margin ratio method produces the break even point in dollars. Contribution margin ratio = contribution margin / sales: can be computed using either dollars or sales. o. Break even point in dollars = fixed costs / contribution margin ratio. Break even point units = sales revenue / sales price per unit. All methods produce the same answer (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1)

Related Questions

In the month of March, Style Salon services 610 clients at anaverage price of $180. During the month, fixed costs were $25,758and variable costs were 70% of sales.

(a) Determine the contribution margin in dollars, per unit, andas a ratio.

Contribution margin	$____________?
Contribution margin per unit	$____________?
Contribution margin ration	____________%?

(b) Using the contribution margin technique, compute thebreak-even point in dollars and in units.

Break-even sales	$______________?
Break-even sales	_____________ units?

turquoiselocust583

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

Larissa Company has a unit selling price of $250, variable costsper unit of $170, and fixed costs of $140,000. Compute thefollowing:

- Contribution margin per unit

- Contribution margin ratio

- Break-even point in units

- Break-even point in dollars

blackbear798

ACCT 2301 Chapter Notes - Chapter 3: Weighted Arithmetic Mean, Mmix, Contribution Margin

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