Question

I cannot figure this out, all my friends have different answers. :/
I will upload my screenshot of my answers from Excel.

the formulas we are using are:

CM = SP - VC
BE = FC / CM

The New Line Jeans Company sells jeans for $50.00 per pair. The costs are as follows: Material $20.00/pair Jeans Labour Costs: $1.25/pair jeans Rent $400/month Insurance $1200/year Salaries $700/month Business License $72/year a) What is the Contribution Margin? b) What is the break-even point in units? Revenue? c) What will be the Net Income at 42 jeans sold? 50 sold? d) If the Fixed Costs and the Variable Costs stay the same, what will be the break-even point if there is a decrease of $3.00 in the Selling Price of the jeans?

My Answers:

Answer 1

A) What is the Contribution Margin?

Ans: Contribution Margin = Total Sale Value minus Total Variabble Cost

A	Selling Price per jeans	$    50
	Total Sales Value
	Less : Variable Cost
	Material per jeans	$    20
	Labour cost per jeans	$ 1.25
B	Total Variable Cost	$    21.25
	Contribution Margin (A -B)	$    28.75

B) What is break-even point in units? Revenue?

Ans: Break-even point = Contribution / Fixed Cost i.e. no profit/loss

	Fixed Cost	Per year	per month
	Rent		$                    400
	Salaries		$                    700
	Insurance	$                    1,200	$                    100
	Business License	$                          72	$                         6
	Fixed Cost per month		$                1,206
	Break even Units     =	Fixed Cost / Contribution Margin
		1206 / 28.75
	Break even point in units	41.95	Units
	Break even point in Revenue
A	No. of Jeans Sold	42 Jeans	50 Jeans
B	Cost of Contribution	28.75 per jeans	28.75 per jeans
	Break even point in Revenue (A * B)	1207.5	1437.5

C) What will be net income at 42 jeans sold? 50 sold ?

Ans: Please refer below table for detail explanation.

	Total Jeans Sold	Cost per jeans	42 jeans	50 Jeans
A	Selling Price per jeans	$               50.00
	Total Sales Value		$       2,100.00	$       2,500.00
	Less : Variable Cost
	Material per jeans	$               20.00	$           840.00	$       1,000.00
	Labour cost per jeans	$                 1.25	$             52.50	$             62.50
B	Total Variable Cost	$               21.25
	Contribution Margin (A -B)	$               28.75	$       1,207.50	$       1,437.50
C	Fixed Cost		$       1,206.00	$       1,206.00
D	Net Income ( B-C)		$                1.50	$           231.50

D) If the Fixed cost and the Variable cost stays the same, what will be the break - even point if there is a decrease of $3.00 in Selling price of the jeans?

Ans : If there is decease in Selling price by $ 3.00 then

New selling price will be $ 50 - $ 3 = $ 47 per jeans

Variable cost remains same as $ 21.25 per jeans

Fixed Cost remains same as $ 1206

So to arrive new break even point we will first calculate Contribution margin per jeans as follows:

a) New Selling Price per jeans $ 47.00

b) Less: Variable Cost per jeans $ 21.25

Contribution Margin (a - b) $ 25.75 per jeans

Now to arrive break even point we will divide the Fixed Cost with Contribution Margin

Break even point = Fixed Cost / Contribution Margin

= $1206 / $ 25.75

= 46.84 jeans  

New Break even point is 46.84 jeans.