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Homework answers / question archive / Assignment 1
Assignment 1. Muscat Contribution Income Statement is presented below [ 7 marks): Total Sales (600 units) $36,000 Variable expenses $12,000 Contribution Margin $24,000 Fixed expenses $6,000 Net Income $18,000 Required: a. Prepare Contribution Income Statement assuming that the business expects an increase in its total sales by $3,000 and decrease in variable cost per unit by 10%. (4 marks) b. Referring to the original contribution statement, calculate BEP in dollars. (1 mark) c. Referring to the original contribution statement, how many units would have to be sold by the business to earn a target profit of $26,000. Use the equation/ formula method and verify your answer by preparing Contribution Income Statement. (2 marks)
Problem Solving - Assignment 1. Muscat Contribution Income Statement is presented below [ 7 marks): Total Sales (600 units) $36,000 Variable expenses $12,000 Contribution Margin $24,000 Fixed expenses $6,000 Net Income $18,000 Required: a. Prepare Contribution Income Statement assuming that the business expects an increase in its total sales by $3,000 and decrease in variable cost per unit by 10%. (4 marks) b. Referring to the original contribution statement, calculate BEP in dollars. (1 mark) c. Referring to the original contribution statement, how many units would have to be sold by the business to earn a target profit of $26,000. Use the equation/ formula method and verify your answer by preparing Contribution Income Statement.
| CONTRIBUTION MARGIN INCOME STATEMENT | |||||||
| Particulars | Amount | ||||||
| Revenue | 39000 | (increase by $3000, units= 39000/60= 650 units) | |||||
| (-) Variable cost(650*18) | 11700 | (per unit cost= 12000/600= $20, decrease= 20-10%= 18 | |||||
| Contribution margin | 27300 | ||||||
| Less: fixed expenses | 6000 | ||||||
| Net income | 21300 | ||||||
| 2. Break even point in dollars= Fixed cost/Contribution margin percent | |||||||
| Contribution percentage= 24000/36000= 66.67% | |||||||
| BEP= 6000/66.67% | $9,000 | ||||||
| 3. Units to earn targeted profit of $26000 | |||||||
| Let units=x | |||||||
| Sales-Variable cost-Fixed cost= Profit | |||||||
| (60-20)x-6000=26000 | 800 units | ||||||
| CONTRIBUTION MARGIN INCOME STATEMENT at targeted profit | |||||||
| Particulars | Amount | ||||||
| Revenue(800*60) | 48000 | ||||||
| (-) Variable cost(800*20) | 16000 | ||||||
| Contribution margin | 32000 | ||||||
| Less: fixed expenses | 6000 | ||||||
| Net income | 26000 |
