Weber, inc. sells its one product for 120 per unit. The variable cost per unit is $30. The fixed cost per year is $900,000

A. What is the contribution margin per unit?Selling price – variable cost = contribution marginSP – VC = CM$120- $30 = $90

B. What is the breakeven point in units?Fixed cost / Contribution marginFC/CM900,000/90 = 10,000 units

C. What is the contribution margin ratio?Contribution Margin/Selling priceCM/SP90/120 = .75 or 75%

D. What is the breakeven point in dollars?Fixed costs/contribution margin rationFC/CMR900,000/.75= 1,200,000 or 10,000 * 120 = 1,200,000

Meeker Company is developing a new product. The selling price has not yet been determined, nor are the variable costs per unit known. The fixed costs are $600,000. Management plans to set the selling price so that variable cost is 55 percent of the selling price.

A.What is the contribution margin ratio?

The formula is CM/SP but it hasn’t been determined. What you do know is that they are going to spend 55 cents on every dollar.1-.55 = .45 (contribution margin ratio)

B.What is the breakeven point in dollars?Fixed costs/contribution margin ratioFC/CMR600,000/.45= $1,333,333

c.If management desires a profit of $50,000, what will total sales be?Fixed cost + Profit / contribution margin ratioFC + Profit /CMR600,000+50,000/.45= $1,444,444.44

Crow, Inc. a not-of-profit company, has a product contribution margin of $40. The fixed costs are $800,000. Crow, Inc. has set a target profit of $35,000 per year.

A. What is the breakeven points in units?Fixed costs/contribution marginFC/CM800,000/40= 20,000

B.How many units must be sold to achieve the target profit?Fixed costs + Profit/ contribution margin FC + Profit/CM800,000 + 35,000 / 40 = 20,875

C. If fixed costs decrease 10 percent, how many units must be sold to achieve the target price?

Fixed cost is 800,000 and to decrease it by 10 percents – 800,000 *.10 = 80,000800,000 – 80,000 = 720,000FC + Profit / CM720,000 + 35,000 / 40 = 18,875

Longpre Company distributes insect repellent. Each can of repellent sells for $4.00. The variable cost per can of repellent is $.75. The fixed selling and distribution costs are $80,000. The after-tax target profit level is $15,000. Longpre Company is subject to an income tax rate of 20 percents.

A.What is the breakeven point in units?Fixed cost/ contribution marginFC/CM80,000/3.25 = 24,615.38 – you can’t have .38 and you can’t go below because you won’t break even so you have to round up 24, 616

B.What is the breakeven point in dollars?Fixed costs/contribution margin ratio --- CMR (CM/SP) 3.25/4.00 = .8125FC/CMR80,000/.8125 = $98,461.54

C. To achieve the profit goal, what must the before-tax profit be?If the tax rate is 20% and it is $15,000 after the 20%$15,000/ (1-.20) = $18,750

D.How many units must be sold to achieve the profit goal after taxes?Fixed cost + Profit before taxes/Contribution marginFC + Profit before taxes/CM(80,000 + $18,750)/3.25 = 30,384.6 or 30,385

Gorman Company has the following cost-volume – profit relationships.Breakeven point in units sold 1,000Variable cost per unit $2,000Fixed cost per period $750,000

A.What is the contribution margin per unit?SP – Variable CostsSP – VC = CM Breakeven is FC/CM = Breakeven750,000/CM= 1,000750,000/1000 = 750750= contribution margin

B.What is the selling price per unit?Selling Price – 2,000 = Contribution MarginSP – 2,000 = 750SP = 750+2000SP = 2750

C. What is the total profit if 1,001 units are sold?If 1000 is breakeven, 1001 has to be 750

Ukaegbu, Inc. currently sells its product for $3.25 per unit. The variable cost per unit is $0.60 and fixed costs are $90,000. Purchasing a new machine will increase fixed costs by $6,000, but variable costs will be cut by 20 percent.

A.What is the breakeven point before the new machine is purchased?FC/CM = Breakeven90,000/2.65 = 33,962.26 (33,963 units)

B.What is the breakeven point after the new machine is purchased?(90,000 + 6,000 = 96,000) (3.25 - .48) = 2.7796,000 / 2.77 = 34,657.04 (34,658)

C.Should Ukaegbu, Inc., purchase the new machine? Why or why not?

We must determine when the costs of the two machines are equal:2.65 * Q – $90,000 = $2.77 * Q - $96,000Q – 90,000 = 2.77 – 2.65 – 96,000Q = .12 – 60006000 = .126000/ .12 = 50,000

If the company believes it will sell more than 50,000 units, it should purchase the new machine because the variable costs are less.