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The Contribution Margin at the Breakeven Point

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1. Butler Sales Company is a distributor that has an exclusive franchise to sell a particular product made by another company. Butler Sales Company's income statements for the last two years are given below:

This Year Last Year
Units sold 200,000 160,000

Sales revenue $1,000,000 $800,000
Less cost of goods sold 700,000 560,000
Gross margin 300,000 240,000
Less operating expenses 210,000 198,000
Net operating income $ 90,000 $ 42,000

Operating expenses are a mixture of fixed costs and variable and mixed costs that vary with respect to the number of units sold.

Required:
a. Estimate the company's variable operating expenses per unit, and its total fixed operating expenses per year. (express it as a cost formula.)

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b. Compute the company's contribution margin for this year.

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2. Baker Company has a product that sells for $20 per unit. The variable expenses are $12 per unit, and fixed expenses total $30,000 per year.

Required:
a. What is the total contribution margin at the break-even point?

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b. What is the contribution margin ratio for the product?

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c. If total sales increase by $20,000 and fixed expenses remain unchanged, by how much would net operating income be expected to increase?

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d. The marketing manager wants to increase advertising by $6,000 per year. How many additional units would have to be sold to increase overall net operating income by $2,000?

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https://brainmass.com/business/finance/contribution-margin-breakeven-point-68815

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1. Butler Sales Company is a distributor that has an exclusive franchise to sell a particular product made by another company. Butler Sales Company's income statements for the last two years are given below:

This Year Last Year
Units sold 200,000 160,000

Sales revenue $1,000,000 $800,000
Less cost of goods sold 700,000 560,000
Gross margin 300,000 240,000
Less operating expenses 210,000 ...

Solution Summary

This discusses the contribution margin at the break-even point

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See Also This Related BrainMass Solution

Contribution margin, break even point, margin safety ratio, fixed costs

Tyson Company bottles and distributes LO-KAL, a fruit drink. The beverage is sold for 50 cents per 16-ounce bottle to retailers, who charge customers 70 cents per bottle.

Management estimates the following revenues and costs.

Net sales $2,500,000 Selling expenses-variable $ 90,000
Direct materials 360,000 Selling expenses-fixed 200,000
Direct labor 650,000 Administrative expenses-
Manufacturing overhead- variable 30,000
variable 370,000 Administrative expenses-
Manufacturing overhead- fixed 140,000
fixed 260,000

Instructions
(a) Compute (1) the contribution margin and (2) the fixed costs.

(b) Compute the break-even point in (1) units and (2) dollars.

(c) Compute the contribution margin ratio and the margin of safety ratio.

(d) Determine the sales dollars required to earn net income of $240,000.

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