Please answer the following Questions: 1. Fixed costs are $240,000, and the cont
ID: 2490649 • Letter: P
Question
Please answer the following Questions:
1. Fixed costs are $240,000, and the contribution margin is 48%. Assuming the manager's salary will increase by $12,000 a year, at what level of sales revenue will operating income be maintained at $47,880.
2. Fixed costs are $53,400, and average check is $12.95 with average variable costs of $7.38. What are break-even units?
3. Fixed costs are $62,400, and average contribution margin is $2.08. What are required sales units to achieve an operating income of $25,000?
Explanation / Answer
1) Total costs to be recovered = 240000 + 12000 = 252000
Profit to be earned = 47880
Total to be recovered = 252000 + 47880 = 299880
Required Sales for operating income of 47880 = Total recovery / Contribution Margin = 299880 / 48% = 624750
2) Break even units = Fixed Cost / Contribution per unit = 53400 / ( 12.95 - 7.38) = 53400/5.57 = 9588 units
3) Required sales units to earn 25000 = (Fixed Costs + Target Profit)/ Contribution per unit = (62400 + 25000)/2.08 = 87400/2.08 = 42020 units