Problem 6: (10 Points) Summer Company sells a product with a contribution margin
ID: 2516462 • Letter: P
Question
Problem 6: (10 Points) Summer Company sells a product with a contribution margin ratio of per month. Wh income of $7,000? If each unit sells for $30, how many units must be sold to achieve the desired operating income? 60%. Fixed costs are $650 at amount of sales (in dollars) must Summer Company have to earn an operating Problem 7: (10 Points) Intersection Driving School charges $500 per student to prepare and administer writ-ten and driving tests. Variable costs of $150 per student include trainers' wages, study materials, and gasoline. Annual fixed costs of $140,000 include the training facility and fleet of cars. Requirements For each of the following independent situations, calculate the contribution margin per unit and the breakeven point in units by first referring to the original data provided: a. Breakeven point with no change in information. b. Decrease sales price to $250 per student.riginl c. Decrease variable costs to $100 per student.Cuse ongi 1. data) Decrease fixed costs to $122,500. (use original data)Explanation / Answer
Pb. 6
Summer Company
Determination of the amount of sales in dollars needed to earn an operating income of $7,000:
Contribution margin ratio = 60%
Fixed cost = $650 per month
Operating income = $7,000
(assuming the given info about operating income is per month)
Desired sales in dollars = (fixed cost + target income)/contribution margin ratio
= (650 + 7,000)/60% = $12,750
Hence, desired sales in dollars = $12,750
Desired sales in units, at unit selling price of $30 is $12,750/$30 = 425 units
Hence the company should sell 425 units at $30 per unit to earn the desired operating income of $7,000 per month.
Pb. 7
Intersection Driving School
Breakeven point in unit sales = fixed cost/unit contribution margin
Fixed cost = $140,000
Contribution margin = sales price – variable cost
Sales price = $500 per student
Variable cost = $150 per student
Contribution margin = $500 - $150 = $350 per student
Break-even point in terms of number of students = $140,000/$350 = 400 students
Fixed cost = $140,000
Sales price = $250 per student
Variable cost = $150 per student
Contribution margin = $250 - $150 = $100
Break-even point = $140,000/$100 = 1,400 students
Fixed cost = $140,000
Variable cost = $100 per student
Sales price = $500 per student
Contribution margin = $500 - $100 = $400 per student
Break-even point = $140,000/$400 = 350 students
Fixed cost = 4122,500
Sales price = $500 per student
Variable cost = $150 per student
Contribution margin = $500 - $150 = $350 per student
Break-even point= $122,500/$350 = 350 students