Question

1. ABC Inc. showed the following operating budget for the next year. Sales $2,100,000 Fixed cost $650,000 Total variable cost 350,000 Total cost 1,000,000 Net Income $1,100,000 Answer the following questions: Keep 8 decimal places for the contribution rate. (a) Calculate the total contribution margin and contribution rate (CR). Hint: For CR equation, consider multiplying both numerator and denominator by X (volume). (b) How much sales revenue does ABC Inc. need to generate to break-even? (c) Suppose the company decides to set a price of $150 for a unit of product that it sells. What is the break-even volume in units?

Answer 1

(a) Total contribution margin = Sales - Total variable cost

= 1,320,000-111,000

= $1,209,000

Contribution Rate = Contribution margin / Sales

= 1,209,000/1,320,000

= 91.59090909%

(b) Break even sales = Fixed costs / Contribution rate

= 567,000/91.59090909%

= $619,057

(c) Break even volume in units = Break even / Selling price per unit

= 619,057/125

= 4,953 ( Rounded to near whole number)