Question

EB6.

LO 3.2Kerr Manufacturing sells a single product with a selling price of $600 with variable costs per unit of $360. The company’s monthly fixed expenses are $72,000.

What is the company’s break-even point in units?
What is the company’s break-even point in dollars?
Prepare a contribution margin income statement for the month of January when they will sell 500 units.
How many units will Kerr need to sell in order to realize a target profit of $120,000?
What dollar sales will Kerr need to generate in order to realize a target profit of $120,000?
Construct a contribution margin income statement for the month of June that reflects $600,000 in sales revenue for Kerr Manufacturing.

Answer 1

1. Break-even in units is 300 units

2. Break-even in dollars is $180,000

3. Contribution Income Statement for 500 units

Sales revenue (500 x 600) $300,000

Variable cost (500 x 360) (180,000)

Contribution margin $120,000

Fixed cost (72,000)

Profit $48,000

4. Units to sell is 800

5. Dollars sales is $480,000

6. Contribution Income Statement for $600,000 sales revenue

Sales revenue (1,000 x 500) $600,000

Variable cost (1,000 x 360) (360,000)

Contribution margin $240,000

Fixed cost (72,000)

Profit $168,000

Step-by-step explanation:

1. To compute the Break-even point in units,

Formula is BEP = total fixed cost / unit contribution margin

Step 1. Compute the unit contribution margin

Unit selling price $600

Less : variable cost 360

Unit contribution margin $240

Step 2. compute the unit break-even in units using the formula.

BEP = total fixed cost / unit contribution margin

BEP = $72,000 / 240

BEP = 300 units

2. To compute the Break-even point in dollars,

Formula is BES = total fixed cost / contribution margin ratio

Step 1. Compute the contribution margin ratio

Unit selling price $600

Less : variable cost 360

Unit contribution margin $240

So, $240 divided by $600 equals 40% (CMR)

Step 2. compute the unit break-even in dollars using the formula.

BEP = total fixed cost / contribution margin ratio

BEP = $72,000 / 40%

BEP = $180,000

3. To prepare the contribution margin income statement, we will multiply the units sold of 500 units by $600 to get the sales revenue. Then multiply 500 units by $360 to get the variable cost. Further illustration below;

Sales revenue (500 x 600) $300,000

Variable cost (500 x 360) (180,000)

Contribution margin $120,000

Fixed cost (72,000)

Profit $48,000

4. To compute the units to sell to realize the target profit we will use the formula:

(Total fixed cost + Target profit )/ unit contribution margin

Step 1. Compute the unit contribution margin

Unit selling price $600

Less : variable cost 360

Unit contribution margin $240

Step 2. compute the units to sell using the formula.

(Total fixed cost + target profit) / unit contribution margin

($72,000 + $120,000) / 240

Answer is 800 units

5. To compute the sales in dollars to realize the target profit of $120,000,

Formula is (Total fixed cost + target profit) / contribution margin ratio

Step 1. Compute the contribution margin ratio

Unit selling price $600

Less : variable cost 360

Unit contribution margin $240

So, $240 divided by $600 equals 40% (CMR)

Step 2. compute the target sales in dollars using the formula.

(Total fixed cost + target profit) / contribution margin ratio

($72,000 + $120,000) / 40%

$192,000 / 40%

Answer is $480,000

6. Contribution Income Statement for $600,000 sales revenue. FIRST we must determine how many unit are sold to have that sales revenue. $600,000 sales revenue divided by unit selling price of $600 equals 1,000 units. To further illustrate, see presentation below.

$600,000 / $600 = 1,000 units

Sales revenue (1,000 x 600) $600,000

Variable cost (1,000 x 360) (360,000)

Contribution margin $240,000

Fixed cost (72,000)

Profit $168,000

Answer 2

Instructions are listed below.

Step-by-step explanation:

Giving the following information:

selling price= $600

variable costs per unit of $360.

The monthly fixed expenses are $72,000.

a) Break-even point= fixed costs/ contribution margin

Break-even point= 72,000/(600 - 360)= 300 units

b) Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 72,000/(240/600)= $180,000

c) Contribution margin income statement:

Sales= 500*600= 300,000

Variable cost= 500*360= (180,000)

Contribution margin= 120,000

Fixed costs= (72,000)

Net operating income= 48,000

d) Profit= 120,000

Break-even point= (fixed costs + target profit)/ contribution margin

Break-even point= 192,000/240= 800 units

e) Break-even point (dollars)= (fixed costs + target profit)/ contribution margin ratio

Break-even point (dollars)= 192,000/(240/600)= $480,000

f) Contribution margin income statement:

Sales= 600,000

Variable costs= (10,000*360)= (360,000)

Contribution margin= 240,000

Fixed costs= (72,000)

Net operating income= 168,000