Question

Multitasking Maniacs Co. Multitasking Maniacs Co. manufactures and sells a specialized cell phone. The company's contribution format income statement for the most recent year is given below: %of Per UnitSales 100% Total Sales (20,000 units) $1,200,000 $60 Variable Expense Contribution Margin$300,000 $15 Fixed Expense Net Income 900,000 $45 $240.000 $60,000 Management is anxious to increase the company's profit and has asked for an analysis of a number of items Required: ariable expense 2. Compute the company's break-even point in both units and sales dollars

Answer 1

1. COMPUTATION OF CM RATIO AND VARIABLE EXPENSE RATIO:

CM RATIO OR PV RATIO = CONTRIBUTION / SALES x 100

= $300000 / $1200000 x 100

= 25%

VARIABLE EXPENSE RATIO = SALES RATIO (-) CM RATIO

= 100% (-) 25%

= 75%

OR

VARIABLE EXPENSE RATIO = VARIABLE EXPENSE / SALES x 100

= $900000 / 1200000 x 100

= 75%

2. CALCULATION OF BREAK EVEN POINT IN BOTH UNITS AND SALES:  

BREAK EVEN POINT IN UNITS = FIXED COST / CONTRIBUTION PER UNIT

= $240000 / $15 PER UNIT

= 16000 UNITS

BREAK EVEN POINT IN SALES = BREAK EVEN POINT IN UNITS x SALE PRICE PER UNIT

= 16000 UNITS x $60 PER UNIT

= $960000

OR

BREAK EVEN POINT IN SALES = FIXED COST / CM RATIO

= $240000 / 25%

= $960000