Question 1: Determine the missing amounts.

Question 1:

Determine the missing amounts.

                                                                               Contribution                Contribution

   Unit Selling Price      Unit Variable Costs       Margin Per Unit            Margin Ratio

1.          $300                           $210                              A                                 B

2.          $600                              C                              $150                              D

3.             E                                 F                              $400                            40%

Question 2:

Unruh Company reports the following results for the month of November:

                 Sales (10,000 units)                                                      $600,000

                 Variable costs                                                                420,000

                 Contribution margin                                                        180,000

                 Fixed costs                                                                     120,000

                 Net income                                                                   $ 60,000

Management is considering the following independent courses of action to increase net income.

1.  Increase selling price by 10% with no change in total variable costs.

2.  Reduce variable costs to 62% of sales.

3.  Reduce fixed costs by $30,000.

Instructions

If maximizing net income is the objective, which is the best course of action?

Increasing the price will increase net income from $60,000 to $120,000. Option (2) will increase net income to only $108,000, and Option (3) will increase net income to only $90,000.

Question 3:

In the month of September, Nixon Company sold 800 units of product. The average sales price was $30. During the month, fixed costs were $7,200 and variable costs were 70% of sales.

Instructions

(a)  Determine the contribution margin in dollars, per unit, and as a ratio.

(b)  Using the contribution margin technique, compute the break-even point in dollars and in units.

Question 4:

The income statement for Dexter Company for 2005 appears below.

DEXTER COMPANY

Income Statement

For the Year Ended December 31, 2005

——————————————————————————————————————————

Sales (40,000 units).......................................................................................            $1,000,000

Variable expenses.........................................................................................                700,000

Contribution margin.......................................................................................                 300,000

Fixed expenses..............................................................................................                360,000

Net income (loss)...........................................................................................            $(   60,000)

Instructions

Answer the following independent questions and show computations using the contribution margin technique to support your answers:

1.  What was the company's break-even point in sales dollars in 2005?

2.  How many additional units would the company have had to sell in 2006 in order to earn net income of $60,000?

3.  If the company is able to reduce variable costs by $2.50 per unit in 2006 and other costs and unit revenues remain unchanged, how many units will the company have to sell in order to earn a net income of $50,000?

Question 5:

Down Company has a unit selling price of $500, variable cost per unit of $300, and fixed costs of $170,000.

Instructions

Compute the break-even point in units and in sales dollars.

Question 6:

Yates Company developed the following information for the product it sells:

Sales price                                                                             $50 per unit

Variable cost of goods sold                                                    $23 per unit

Fixed cost of goods sold                                                        $800,000

Variable selling expense                                                        10% of sales price

Variable administrative expense                                            $2.00 per unit

Fixed selling expense                                                            $400,000

Fixed administrative expense                                                $300,000

For the year ended December 31, 2005, Yates Company produced and sold 90,000 units of product.

Instructions

(a)    CVP income statement using the contribution margin format for Yates Company for 2005.

(b)   What was the company's break-even point in units in 2005? Use the contribution margin technique.

(c)   What was the company's margin of safety in dollars in 2005?

Question 7

        Alley Company makes student book bags that sell for $20 each. For the coming year, management expects fixed costs to be $200,000. Variable costs are $15 per unit.

Instructions

(a)    Compute break-even sales in dollars using the mathematical equation.

(b)    Compute break-even sales using the contribution margin ratio.

(c)    Compute margin of safety ratio assuming actual sales are $1,000,000.

(d)    Compute the sales required to earn net income of $90,000, using the mathematical equation.

Question 8

        Sayler Company earned net income of $350,000 last year. This year it wants to earn net income of $400,000. The company's fixed costs are expected to be $300,000, and variable costs are expected to be 50% of sales.

Instructions

(a)    Determine the required sales to meet the target net income of $400,000 using the mathematical equation.

(b)    Using a CVP income statement format, prove your answer.

c. margin of safety.