# Calculating contribution margin and break even units

I need to produce a solution to the following:

Claire's Antiques has fixed cost of $75,000 per month. Each antique has the following identifiable sales price, variable material costs, and fixed monthly costs, respectively.

Sales Price Variable Material Costs Fixed Monthly Costs

Clocks $700 $320 20%

Dinette Sets $3,700 $1,280 35%

Bedroom Suites $6,500 $1,840 45%

When Claire's Antiques sells antiques through a distributor they pay a sales commission of 10% of the sales price. It sells 70% of each antique through its distributors. Assume that the fixed costs are allocated 20%, 35%, and 45% to the Clocks, Dinette Sets, and Bedroom Suites, respectively. Currently, the allocations are based on estimated design time for each antique.

1. Calculate the contribution margin for each antique. For purposes of this computation, ignore the sales commission as one of the variable cost.

2. Calculate the MONTHLY break-even units for each antique, once again, ignoring the variable cost for the sales commission.

3. This year, Claire's Antiques expects to sell 620 units of clocks, 180 units of dinette sets, and 110 units of bedroom suites, (70% through distributors as expected). Prepare a contribution margin income statement (with sales, each type of variable expense (material and sales commission), and fixed expenses) for Claire's Antiques based upon these sales volumes.

4. The distributors are now requesting a 15% commission on all antiques. Claire's Antiques does not want to change the selling prices of its antiques in order to absorb this increase. Compute by how much will it have to reduce other costs to make up for this request? What other counter-proposals could be suggested?

5. Claire's Antiques is facing fierce competition from a new company, and management decides to lower the selling price of the dinette sets by 10%. Also, they decide to acquire additional advertising at a cost of $1,000 per month. This cost will be allocated only to the dinette sets. Recalculate their Break Even (for the dinette sets only) point given the new information. Ignore sales commissions completely.

Thanks in advance.

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#### Solution Preview

Solution to your problem is provided in a separate excel sheet (Excel file) attached herewith.

There are five statements in the sheet as follows.

1 Marginal cost statement.

2 Monthly Break even ...

#### Solution Summary

This solution assists in calculating contribution margin and break even units for Claire's Antiques.