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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.)

    __________________________________________________

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

    __________________________________________________

    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?

    ________________________________

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

    ________________________________

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

    ________________________________

    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

    $2.19

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