Final answer:
To compute the contribution margin per package and the contribution margin ratio, subtract the variable expense per package from the sales price per package and divide by the sales price per package respectively. The breakeven point in units is found by dividing the fixed expense by the contribution margin per package, and the breakeven point in dollars is found by multiplying the breakeven point in units by the sales price per package. The number of packages needed to earn a specific operating income is found by adding the operating income to the fixed expense, and then dividing the result by the contribution margin per package.
Step-by-step explanation:
To compute the contribution margin per package, we subtract the variable expense per package from the sales price per package. The contribution margin per package is: $2.00 - $1.20 = $0.80. To compute the contribution margin ratio, we divide the contribution margin per package by the sales price per package. The contribution margin ratio is: $0.80 / $2.00 = 40%.
To find the breakeven point in units, we divide the fixed expense by the contribution margin per package. The breakeven point in units is: $85,000 / $0.80 = 106,250 units. To find the breakeven point in dollars, we multiply the breakeven point in units by the sales price per package. The breakeven point in dollars is: 106,250 units x $2.00 = $212,500.
To find the number of packages Socks unlimited needs to sell to earn a $22,000 operating income, we start with the operating income and add the fixed expenses. Then, we divide the result by the contribution margin per package to find the number of packages. The number of packages needed to earn a $22,000 operating income is: ($22,000 + $85,000) / $0.80 = 135,000 packages.