Sales (40,000 units) $1,000,000 Variable expenses 700,000 Contribution margin 300,000 Fixed expenses 330,000 Net income (loss) $ (30,000)
1. What was the company 's break-even point in sales dollars in 2008?
2. How many additional units would the company have had to sell in 2009 in order to earn net income of $30,000?
3. If the company is able to reduce variable costs by $2.50 per unit in 2009 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 $35,000?
1. $330,000 ———— = $1,100,000 30% Breakeven point in units = Fixed Costs / (Sales – Variable costs)
Variable cost per unit = 60% x $10 = $6
Breakeven…show more content… Indicate what contribution margin is and how it can be expressed
Contribution margin is the amount remaining from sales revenue after variable expenses have been deducted. Thus it is the amount available to cover fixed expenses and then to provide profits for the period. If the contribution margin is not sufficient to cover the fixed expenses, then a loss occurs for the period. It can be expressed as a per unit amount or as a ratio. It is identified in a CVP income statement, which classifies costs as variable or fixed.
Define margin of safety, and give the formulas for computing it.
Margin of safety is the difference between actual or expected sales and sales at the break-even point (true). The formulas for margin of safety are: Actual (expected) sales – Break-even sales = Margin of safety in dollars; Margin of safety in dollars ÷ Actual (expected) sales = Margin of safety ratio. Describe the sources for preparing the budgeted income statement.
Prepared from the operating budgets
Direct Materials Budget
Direct Labor Budget
Manufacturing Overhead Budget
Selling and Administrative Expense Budget
Explain the principal sections of a cash budget. The three sections of cash budget are (receipts, disbursements, and financing) and the beginning and ending cash balances.
1. Changes in the level of activity will cause unit variable and unit fixed costs to change in opposite directions. (False)