Homework Answers
Part 1
| 1 | Selling price per unit = Total Sales/ Quantity Sold = $2702500/540500 = $5 | |||||||||
| 2 | Variable Cost per unit = Total Variable Cost/ Units of production = $1945800/540500 = $3.6 | |||||||||
| 3 | Contribution Margin Ratio = Contribution per unit*100/Sales per unit = ($5-$3.6)*100/$5 = 28% | |||||||||
| 4 | Break-even point = Total fixed Cost/ Contribution margin ratio = $ 857640/ 28% = $3063000 | |||||||||
Part 2
| Revised Contribution Margin ratio for alternative 1 = ($5*120% -$3.6)*100/($5*120%) = 40% | |||||||||||
| Revised Contribution Margin ratio for alternative 2 = ($5 -($3.6 + $5*4%))*100/$5 = 24% | |||||||||||
| Break-even point for alternative 1 = Total fixed Cost/ Contribution Margin Ratio = $857640/40% = $2144100 | |||||||||||
| Break-even point for alternative 2 = Revised Total fixed Cost/ Contribution Margin Ratio | |||||||||||
| = ($857640 -($162150 - $64860))/24% = $3168125 | |||||||||||
As the Breakeven-point is lowest and contribution margin ratio is highest in the alternative 1, therefore alternative 1 .i.e, increasing the selling price by 20% should be chosen.
| I hope this answer helps you, please make a thumbs up if like the solution or please comment, in case any improvement in the solution or help need |
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