Question

. At the break-even point, Jefferson Company sells 115,000 units and has fixed cost of $349,600. The variable cost per unit is $4.56. What price does Jefferson charge per unit? Note: Round your answer to the nearest cent. $ 2. Sooner Industries charges a price of $120 and has fixed cost of $458,000. Next year, Sooner expects to sell 15,600 units and make operating income of $166,000. What is the variable cost per unit? What is the contribution margin ratio? Note: Enter the contribution margin ratio as a percentage, rounded to two decimal places.

Answer 1

Answer:

1. Sales price per unit = $7.60

2. Variable cost per unit = $80; Contribution margin ratio = 33.33%

Explanation:

Requirement 1

We know,

Break-even point (in units) = Fixed expense ÷ (Sales price per unit - Variable cost per unit)

Given,

Fixed expense = $349,600

Sales price per unit = Total sales ÷ Total number of units (As we have to find the sales price per unit)

Variable cost per unit = $4.56

As the company is in break-even point, it means there is no loss and no profit if the company sells 115,000 units.

Therefore, 115,000 units = $349,600 ÷ (Sales price per unit - $4.56)

or, 115,000 units × (Sales price per unit - $4.56) = $349,600

or, Sales price per unit - $4.56 = $349,600 ÷ 115,000 units

or, Sales price per unit = $3.04 + $4.56 = $7.60

Requirement 2

                                     Sooner Industries

               Income statement (contribution margin format)

For 15,600 units sold

                                           Unit              Total                     (%)

Sales revenue                   $120         $1,872,000               100

(-) Variable expense          $(80) (3)  $(1,248,000) (2)        66.67

Contribution Margin          $40         $624,000 (1)           33.33 (4)

(-) Fixed expense                                $(458,000)             24.47      

Net operating income                         $166,000                8.86

Note - 1:

Contribution Margin - Fixed expense = Net Income

or, Contribution Margin - $458,000 = $166,000

or, Contribution Margin = $166,000 + 458,000

or, Contribution Margin = $624,000

Note - 2:

Sales - Variable expense = contribution margin

or, $1,872,000 - Variable expense = $624,000 (From Note - 1)

or, $1,872,000 - $624,000 = Variable expense

or, Variable expense = $1,248,000

Note - 3:

Variable cost per unit = Total Variable expense ÷ number of units sold

or, Variable cost per unit = $1,248,000 ÷ 15,600 units

or, Variable cost per unit = $80

Note - 4:

Contribution margin ratio = (Contribution Margin ÷ Total sales) × 100

or, Contribution margin ratio = ($624,000 ÷ $1,872,000) × 100

or, Contribution margin ratio = 33.33%