Question

Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost.Last year, the company sold 50,000 of these balls, with the following results: Sales (50,000 balls) $ 1,500,000 Variable expenses 900,000 Contribution margin 600,000 Fixed expenses 480,000 Net operating income $ 120,000 Compute the CM ratio and the break-even point in balls.

Answer 1

Answer: CM RATIO = 40% BREAK EVEN POINT UNITS = 48000

Step-by-step explanation:

the contribution margin ratio (CM RATIO) shows the percentage excess of sales over variable costs. contribution margin ratio is calculated by subtracting variable costs from sales then divide the difference by sales.

sales per unit (seling price) = $25

variable costs per unit = $15

contribution margin ratio = (sale - variable costs)/sales

contribution margin ratio = (25 - 15)/25 = 0.4 = 0.4 × 100 =40%

Break even point in units is the amount of units that a company needs to sell in order to cover total costs. it is point where the business makes no profit or loss.

break even point= fixed costs/CM ratio = 480000/40% = $1200 000

Therefore break even units = 1200 000/25 = 48000

Answer 2

CM ratio = 0.4 = 40%

BEP units = 48,000

Step-by-step explanation:

`(Contribution \: Margin)/(Sales \: Revenue) = Contribution \: Margin \: Ratio`

The CM ratio represent the amount each dollar of sales generates:

`(600,000)/(1,500,000) = Contribution \: Margin \: Ratio`

CM ratio = 0.4 = 40%

`(Fixed\:Cost)/(Contribution \:Margin) = Break\: Even\: Point_(units)`

we divide the fixed cost for the contribution each units provides:

sales price 25 - variable cost 15 = 10

`(480,000)/(10) = Break\: Even\: Point_(units)`

BEP units = 48,000