The request business is planning to manufacture a new type of tennis ball. Each
ID: 2529803 • Letter: T
Question
The request business is planning to manufacture a new type of tennis ball. Each tennis ball would sell for 3.75 and would require 1.75 in variable costs. In addition, annual fixed costs associated with the project would total 64,000. (A) use the contribution margin approach to calculate: (1) the breakeven point in units (2) the breakeven point in dollars (B) determine the operating income or loss at a sales volume of 30,000 tennis balls. (C) determine the number of tennis balls must be sold to earn a profit of 80,000. The request business is planning to manufacture a new type of tennis ball. Each tennis ball would sell for 3.75 and would require 1.75 in variable costs. In addition, annual fixed costs associated with the project would total 64,000. (A) use the contribution margin approach to calculate: (1) the breakeven point in units (2) the breakeven point in dollars (B) determine the operating income or loss at a sales volume of 30,000 tennis balls. (C) determine the number of tennis balls must be sold to earn a profit of 80,000. The request business is planning to manufacture a new type of tennis ball. Each tennis ball would sell for 3.75 and would require 1.75 in variable costs. In addition, annual fixed costs associated with the project would total 64,000. (A) use the contribution margin approach to calculate: (1) the breakeven point in units (2) the breakeven point in dollars (B) determine the operating income or loss at a sales volume of 30,000 tennis balls. (C) determine the number of tennis balls must be sold to earn a profit of 80,000.Explanation / Answer
Ans.1 Break even point in units = 32000 units *Calculations: Break even point in units = Fixed cost / Contribution margin per unit 64000 / 2 32000 units *Contribution margin per unit = Selling price per unit - variable cost per unit 3.75 - 1.75 2 Ans.2 Break even point in dollars = 120008 (rounded) Break even point in dollars = Fixed cost / Contribution margin ratio 64000 / 53.33% 120007.5 Contribution margin ratio = Contribution margin / Sales * 100 2 / 3.75 * 100 53.33% Ans.3 Sales (30000*3.75) 112500 Less: Variable expenses (30000*1.75) 52500 Contribution margin 60000 Less: Fixed costs 64000 Net operating loss -4000 Ans.4 Sales units for desired profit = (Fixed cost + Profit) / Contribution margin per unit (64000 + 80000) / 2 72000 units