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Homework answers / question archive / Basic Cost-Volume-Profit Concepts Klamath Company produces a single product
Basic Cost-Volume-Profit Concepts
Klamath Company produces a single product. The projected income statement for the coming year is as follows:
Sales (54,600 units @ $34)$1,856,400Total variable cost1,064,700Contribution margin$ 791,700Total fixed cost801,850Operating income$(10,150)
Required:
1) Compute the unit contribution margin and the units that must be sold to break even.
2) Suppose 10,000 units are sold above breakeven. What is the operating income?
3) Compute the contribution margin ratio. Use the contribution margin ratio to compute the break-even point in sales revenue. (Note: Round the contribution margin ratio to four decimal places before converting to a percentage (for example, 0.80378 would be rounded to .8038, and entered as 80.38%), and round the sales revenue to the nearest dollar.)
Suppose that revenues are $200,000 more than expected for the coming year. What would the total operating income be
1) Computation of the unit contribution margin:-
Unit contribution margin = Contribution margin / Number of units
= $791,700 / 54,600
= $14.50 per unit
Computation of the break even point in units:-
Break-even point = Fixed cost / Unit Contribution margin
= $801,850 / $14.5
= 55,300 units
2) Computation of the operating income:-
Total number of units in sales = 55,300 + 10,000
= 65,300
Variable cost per unit = Total variable cost / Number of units
= $1,064,700 / 54,600
= $19.50
Contribution margin = 65,300 * ($34 - $19.50)
= 65,300 * $14.50
= $946,850
Operating income = Contribution margin - Fixed cost
= $946,850 - $801,850
= $145,000
3) Computation of the contribution margin ratio:-
Contribution margin ratio = Unit contribution margin / Selling price per unit
= $14.50 / $34
= 42.65%
Computation of the break even sales revenue:-
Break even sales revenue = Fixed cost / Contribution margin ratio
= $801,850 / 42.65%
= $1,880,070
Computation of the total operating income:-
Total contribution margin = $791,700 + ($200,000 * 42.65%)
= $791,700 + $85,300
= $877,000
Operating income = Total contribution margin - Fixed cost
= $877,000 - $801,850
= $75,150
