Question

Requirements 1. What is the company's contribution margin per unit? Contribution margin percentage? Total contribution margin? 2. What would the company's monthly operating income be if the company sold 150,000 units? 3. What would the company's monthly operating income be if the company had sales of $4,500,000? 4. What is the breakeven point in units? In sales dollars? 5. How many units would the company have to sell to earn a target monthly profit of $260,400? 6. Management is currently in contract negotiations with the labor union. If the negotiations fail, direct labor costs will increase by 9%, and fixed costs will increase by $24,400 per month. If these costs increase, how many units will the company have to sell each month to break even? 7. Return to the original data for this question and the rest of the questions. What is the company's current operating leverage factor (round to two decimals)? 8. If sales volume increases by 6%, by what percentage will operating income increase? 9. What is the company's current margin of safety in sales dollars? What is its margin of safety as a percentage of sales? 10. Say the company adds a second size of SD card (512GB in addition to 256GB). A 512GB SD card will sell for $50 and have variable cost per unit of $28 per unit. The expected sales mix is four of the 256GB SD cards for every one of the 512GB SD cards. Given this sales mix, how many of each type of SD card will the company need to sell to reach its target monthly profit of $260,400? Is this volume higher or lower than previously needed (in Question 5) to achieve the same target profit? Why? Print Done

Answer 1

Requirement 1:-

Contribution margin per unit = Sales Price - Variable cost per unit

Contribution margin per unit = $25 - ($6.60 + $7 + $2.40 + $1.90)

Contribution Margin per unit = $25 - $17.9

Contribution margin per unit = $7.1

Contribution margin percentage = ($7.1/$25) * 100

Contribution margin percentage = 28.40%

Total contribution margin = $7.1 * 120,000 units = $852,000

Total Contribution margin = $852,000

Requirement 2:-

Monthly Operating Income if company sold $150,000 units

Particulars	Per Unit	No.of units	Amount
Contribution Margin	7.1	150,000	1,065,000
Less:- Fixed expenses			569,800
Operating Income			495,200

Requirement 3:-

If company had sales of $4,500,000

Number of units sold = $4,500,000/$25(sale price per unit)

Number of units sold = 180,000 units

Particulars	Per Unit	No.of units	Amount
Contribution Margin	7.1	180,000	1,278,000
Less:- Fixed expenses			569,800
Operating Income			708,200

Please let me know if you have any questions via comments and all the best :) !

Requirement 4:-

Break even point in units = Fixed costs/Contribution margin per unit

Fixed costs =$569,800

Break even point in units = $569,800/$7.1

Break even point in units =  80,253.52

Break even point in units = 80,254 units (Rounded)

Break even point in dollars = 80,254 units * $25 per unit

Break even point in dollars = $2,006,350

Kindly note that i have answered the first 4 questions per the Chegg answering guidelines. Request you to post the remaining questions separately so that we can answer them as well. All the best and please let me know if you have any questions via comments :)