Other formulas needed outside of the reading material:
Sales = Variable expenses + Fixed expenses +Profit
Sales = Quantity * Units
Profit = (Sales × CM ratio) - Fixed Cost
Review Problems : Contribution margin and ratio
Problem 1:
Sales per unit = $250
Variable Cost per unit = $150
Units = 350
a) Calculate Contribution Margin Per Unit
b) Calculate Contribution Margin (CM) Ratio Per Unit
c) Calculate Total Contribution Margin (CM) Dollars
Problem 2:
Sales = $5,000,000
CM Ratio = 0.40
Fixed cost = $1,600,000
Calculate Profit.
Problem 3:
A company has budgeted sales of $200,000, a profit of $60,000 and fixed expenses of $40,000.
Calculate contribution margin ratio.
Review Problem : Break-even point
Problem 4:
Voltar Company manufactures and sells a telephone answering machine. The company's contribution format income statement for the most recent year is given below:
|
Total
|
Per unit
|
Pct. of sales (Ratios)
|
|
Sales
|
$1,200,000
|
$60
|
100%
|
|
Less variable expenses
|
900,000
|
45
|
?%
|
|
|
--------
|
--------
|
--------
|
|
Contribution margin
|
300,000
|
15
|
?%
|
|
Less fixed expenses
|
240,000
|
======
|
======
|
|
|
--------
|
|
|
|
Net operating income
|
$60,000
|
|
|
|
|
======
|
|
|
a) What is the Contribution Margin (CM) Ratio (or percent of sales)?
b) Calculate break-even point both in total units and total sales dollars.
Problem 5:
Management is anxious to improve the company's profit performance. Assume that next year management wants the company to earn a minimum profit of $90,000.
How many units will have to be sold to meet the target profit figure?