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    Contribution Margin Calculations for Jerry Stone

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    Jerry Stone owns and operates a small beach shop in a mall on Sanibel Island, Florida. For the last six months, Jerry has had a display of sunglasses in the front window. Largely because of the display, Jerry has sold 100 pairs of sunglasses per month at an average cost of $26 and selling price of $50. The sales volume has doubled since the display was put in the window. Onefourth of Jerry's storage space is occupied by 190 ice coolers. The coolers have not been selling as well as Jerry hoped, but he is convinced that a front window display of coolers would increase sales by 50%. The coolers cost Jerry a total of $2,280 and have been selling at a rate of 100 per month at $28 each.

    1. Assuming that cost of goods sold is the only variable cost, compute the contribution margin per unit for sunglasses and ice coolers.
    2. Compute the total contribution margins for both sunglasses and ice coolers assuming window displays and no window displays for both items.
    3. What are the economic costs associated with keeping the sunglass display in the store window?
    4. What are the economic costs associated with replacing the sunglass display with an ice cooler display?

    Exercise 16-12

    Break-Even Point and Target Income
    Detienne Company manufactures and sells one product for $20 per unit. The unit contribution margin is 40% of the sales price, and fixed costs total $80,000.

    1. Using the equation approach, compute:
    a. The break-even point in sales dollars and units.
    b. The sales volume (in units) needed to generate a profit of $40,000.
    c. The break-even point (in units) if variable costs increase to 80% of the sales price and fixed costs increase to $100,000.

    2. See if you can recompute the solutions to 1(a), 1(b), and 1(c) in one equation step using either the contribution margin ratio or the contribution margin dollars per unit.

    Chapter 21

    Problem 21-1
    Inventory Turnover in a Manufacturing Company
    The following information is for Bun MaScare Company:
    Beginning raw materials inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,000
    Raw materials purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110,000
    Ending raw materials inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000
    Manufacturing Overhead (actual) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000
    Beginning work-in-process inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
    Ending work-in-process inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
    Direct labor costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
    Beginning finished goods inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
    Ending finished goods inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .270,000
    Overapplied manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000
    Required:
    Compute the following (assume 365 days in a year):
    1. Inventory turnover for raw materials inventory.
    2. Days' supply of raw materials inventory.
    3. Inventory turnover for work-in-process inventory.
    4. Days of manufacturing represented by work-in-process inventory.
    5. Inventory turnover for finished goods inventory.
    6. Days' sales in finished goods inventory.
    7. Interpretive Question: What conclusions can you draw from your inventory turnover calculations?

    The book use is " Accounting: Concepts and Applications" by Albrecht 2005

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    Solution Summary

    The solution calculates the contribution margins for Jerry Stone's case study.

    $2.19

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