A furniture manufacturer specializes in wood tables. The tables sell for $100 per unit and incur $40 per unit in variable costs. The company has $6,000 in fixed costs per month. Calculate the breakeven point in units under each independent scenario.
14. Variable costs increase by $10 per unit.
15. Fixed costs decrease by $600.
16. Sales price increases by 10%.
15. 90 Units
16. 86 Units
Required sales in units = Fixed costs + Target profit/ Contribution margin per unit
Required sales in units = New Fixed costs + Target profit/ Contribution margin per unit
New Sales Price = Existing Price (1+Increase in sales Price)
Required sales in units = Fixed costs / Contribution margin per unit
= 86 Units
England Productions performs London shows. The average show sells 1,300 tickets at$60 per ticket. There are 175 shows per year. No additional shows can be held as thetheater is also used by other production companies. The average show has a cast of65, each earning a net average of $340 per show. The cast is paid after each show. Theother variable cost is a program-printing cost of $8 per guest. Annual fixed costs total$728,000.
1. Compute revenue and variable costs for each show.
2. Use the equation approach to compute the number of shows England Productionsmust perform each year to break even.
3. Use the contribution margin ratio approach to compute the number of showsneeded each year to earn a profit of $5,687,500. Is this profit goal realistic? Giveyour reasoning.
4. Prepare England Productions’s contribution margin income statement for175 shows performed in 2018. Report only two categories of costs: variableand fixed.
Owner Shan Mu is considering franchising her Noodles by Mu restaurant concept. She believes people will pay $10.00 for a large bowl of noodles. Variable costs are $5.00 per bowl. Mu estimates monthly fixed costs for a franchise at $9,000.
1. Use the contribution margin ratio approach to find a franchise’s breakeven sales in dollars.
2. Mu believes most locations could generate $61,500 in monthly sales. Is franchising a good idea for Mu if franchisees want a minimum monthly operating income of $21,000? Explain your answer.
A furniture manufacturer specializes in wood tables. The tables sell for $100 per unit and incur $40 per unit in variable costs. The company has $6,000 in fixed costs per month. The company desires to earn an operating profit of $12,000 per month.
10. Calculate the required sales in units to earn the target profit using the equation method.
11. Calculate the required sales in units to earn the target profit using the contribution margin method.
12. Calculate the required sales in dollars to earn the target profit using the contribution margin ratio method.
13. Calculate the required sales in units to break even using the contribution margin method.
Question: Gilbert’s Steel Parts produces parts for the automobile industry. The company has monthly fixed costs of $640,220 and a contribution margin of 85% of revenues.
1. Compute Gilbert’s monthly breakeven sales in dollars. Use the contribution margin ratio approach.
2. Use contribution margin income statements to compute Gilbert’s monthly operating income or operating loss if revenues are $500,000 and if they are $1,050,000.
3. Do the results in Requirement 2 make sense given the breakeven sales you computed in Requirement 1? Explain.
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