Exercise 16.

8 Name:

Enter the appropriate amount in the shaded cells in columns C and E.

1. Contribution Margin
Variable
Contribution margin = Price − costs

= $16.00 − $10.80

= $5.20

2. Break-Even
Fixed Contribution
Break-even in units = costs / margin

= $66,560 / $5.20

= 12,800

3. Operating Income
Sales $ 208,000
Less: Variable costs 140,400
Contribution margin $ 67,600
Less: Fixed costs 66,560
Operating income $ 1,040

4. Margin of Safety
In units:
Sold units 13,000
Break-even units 12,800
Margin of safety 200
In sales revenue:
Sales revenue $ 208,000
Break-even sales 204,800
Margin of safety $ 3,200
Exercise 16.13 Name:

Enter the appropriate amount in the shaded cells in columns B, D, G, I, K and M.

Current Proposed
Sales Average Number of Sales
comission % x car price X = Salary x salespersons + comission % x

6.0% x $75,000 X = $1,600 x 15 + 2.0% x

$4,500 X = $24,000 + $1,500 X

$3,000 X = $24,000

X = 8 cars per month

Average
Monthly revenue = Months x car price

= 8 x $75,000

= $600,000
Average
car price X

$75,000 X
Exercise 16.15 Name:

Enter the appropriate answers in the gray-shaded cells. The essay answer will not be graded.

1. Break-Even Units

Break-even units = Fixed costs / Unit contribution margin

= $120,000 / $200

= 600 units

2. After-Tax Target Income

First, convert after-tax profit to before-tax profit:

After-tax
Before-tax profit = profit / (1 − Tax rate)
= $480,000 / 200.0

= $2,400

X = number of units to sell to yield before-tax profit

(Unit (Unit
Before-tax profit = selling price) X − variable cost) X − Fixed costs
$375,000 = $400 X− $200 X− $120,000

X = 2,475 units

3. Alternative A
Revenue:
Unit price Unit sales
Jan. – May $400 x 350 = $ 140,000

June – Dec. $370 x 2,200 = 814,000

Total revenue $ 954,000

Variable costs:
Unit cost Unit sales Revenue $ 954,000
Jan. – May $200 x 350 = $ 70,000 Variable costs 455,000
Fixed costs 120,000
June – Dec. $175 x 2,200 = 385,000 Operating profit $ 379,000
Tax at 40% 151,600
 Total variable cost $ 455,000 After-tax profit $ 227,400

Alternative B
Revenue:
Unit price Unit sales
Jan. – May $400 x 350 = $ 140,000

June – Dec. $360 x 2,700 = 972,000

Total revenue $ 1,112,000

Variable costs:
Unit cost Unit sales Revenue
Jan. – May $200 x 3,050 = Variable costs
Fixed costs
June – Dec. x = Operating profit
Tax at 40%
Total variable cost After-tax profit

Alternative C
Revenue:
Unit price Unit sales
Jan. – May x =

June – Dec. x =

Total revenue

Variable costs:
Unit cost Unit sales Revenue
Jan. – May x = Variable costs
Fixed costs
June – Dec. x = Operating profit
Tax at 40%
Total variable cost After-tax profit

4.
[Key essay answer here]
Exercise 16.22 Name:

Enter the appropriate amounts in the gray-shaded cells.

1. Break-Even Units
Unit Unit
Product price − var. cost = CM per unit x Units in mix
Regular $ 150.00 − $ 100.00 = $50.00 x 5
Deluxe $ 675.00 − $ 405.00 = $270.00 x 1
Total

Fixed costs $3,440,000.00

Break-even units = = = 6615.3846
Package CM $520.00

Product Units in mix x BE packages = Total units

Regular 5 x 6,615.3846 = 33,077
Deluxe 1 x 6,615.3846 = 6,615

2. Break-Even Sales Dollars

Contribution margin $9,360,000

Contribution margin ratio = = = 0.3649
Sales $25,650,000

Fixed costs $3,440,000

Break-even in sales dollars = = = $9,427,240
CM ratio 0.3649
 = Package CM
= $ 250.00
= 270.00
$ 520.00

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