1. How does the total contribution margin (unit contribution margin x total number of units sold) differ from the gross margin often seen on companies' financial statements?
2. When would the sum of the break-even quantities for each of a company's products not be the break-even point for the company as a whole?
3. Break-even and target profits; volume defines in sales dollars. The manager of Wong's Food Express estimates operating costs for the year will total $300,000 for fixed costs.
a. Find the break-even point in sales dollars with a contribution margin ratio of 40 percent.
b. Find the break-even point in sales dollars with a contribution margin ratio of 25 percent.
c. Find the sales dollars required with a contribution margin ratio of 40 percent to generate a profit of $100,000.
4. Quality Cabinet Construction is considering introducing a new cabinet-production seminar with the following price and cost characteristics:
Tuition $200 per student
Variable Costs (wood, supplies, etc.) $120 per student
Fixed Costs (advertising, instructor's salary, insurance, etc.) $400,000 per year
a. What enrollment enables Quality Cabinet Construction to break even?
b. How many students will enable Quality Cabinet Construction to making an operating profit of $200,000 for the year?
c. Assume that the projected enrollment for the year is 8,000 students for each of the following situations:
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What will be the operating profit for 8,000 students?
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What would be the operating profit if the tuition per student (that is sales price) decreased by 10 percent? Increased by 20 percent?
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What would be the operating profit if variable costs per student decreased by 10 percent? Increased by 20 percent?
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Suppose that fixed costs for the year are 10 percent lower than projected, whereas variable costs per student are 10 percent higher than projected.What would be the operating profit for the year?