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Horngren'S Financial And Managerial Accounting
Found in: Page 1133

Short Answer

The budgets of four companies yield the following information:

Company

Blue Red Green Yellow

Net Sales Revenue $ 1,900,000 $ (d) $ 1,500,000 $ (j) Variable Costs (a) 47,250 1,050,000 256,200 Fixed Costs (b) 168,000 159,000 (k) Operating Income (Loss) 298,500 (e) (g) 97,800

Units Sold 190,000 9,000 (h) (l) Contribution Margin per Unit $ 3.00 $ (f) $ 75.00 $ 18.00

Contribution Margin Ratio (c) 80% (i) 30%

Requirements

1. Fill in the blanks for each missing value. (Round the contribution margin per unit to the nearest cent.)

2. Which company has the lowest breakeven point in sales dollars?

3. What causes the low breakeven point?

(1) (a) $1,330,000

(b) 271,500

(c) 30%

(d) $236,250

(e) $21,000

(f) $21

(g) $291,000

(h) 6,000

(i) 30%

(j) $366,000

(k) $12,000

(l) 6,100

(2)Yellow has the lowest breakeven point that is $40,000.

(3) Low contribution margin ratio and sales.

See the step by step solution

Step by Step Solution

Step 1: Calculation of (a), (b), (c) 

Net sales revenue

$1,900,000

Variable costs ($1,900,000 / 190,000)-$3 ) x 190,000

(a)$1,330,000

Fixed costs ($1,900,000 - $1,330,000-$298,500)

(b)$271,500

Operating income (Loss)

$298,500

Units sold

190,000

Contribution margin per unit

$3

Contribution margin ratio ($3 / ($1,900,000 / 190,000)

(c)30%

Step 2: Calculation of (d), (e), (f)

Net sales revenue ($47,250 / (1-80%))

(d)$236,250

Variable costs

$47,250

Fixed costs

$168,000

Operating income (Loss) ($236,250 -$47,250-$168,000)

(e) $21,000

Units sold

9,000

Contribution margin per unit ($236,250/9,000) x 80%

(f)$21

Contribution margin ratio

80%

Step 3: Calculation of (g), (h), (i) 

Net sales revenue

$1,500,000

Variable costs

$1,050,000

Fixed costs

$159,000

Operating income (Loss) ($1,500,000-$1,050,000-$159,000)

(g) $291,000

Units sold ($1,500,000-$1,050,000) / 75

(h) 6,000

Contribution margin per unit

$75

Contribution margin ratio

(i)30%

Step 4: Calculation of (j), (k), (l) 

Net sales revenue ($256,200 / (1-30%)

(j)$366,000

Variable costs

$256,200

Fixed costs ($366,000 - $256,200 - $97,800)

(k)$12,000

Operating income (Loss)

$97,800

Units sold ($366,000 - $256,200) / $18

(l)6,100

Contribution margin per unit

$18

Contribution margin ratio

30%

Step 5: Calculation of breakeven sales in dollars

Step 6: Cause of low breakeven point 

Low contribution margin causes the low breakeven point. Yellow has the lowest contribution margin ratio that is why it has the lowest breakeven point.

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