Question

Ten Toes produces sports socks. The company has fixed expenses of $ 90 comma 000 and variable expenses of $ 0.90 per package. Each package sells for $ 1.80. Requirement 1. Compute the contribution margin per package and the contribution margin ratio. 2. Find the breakeven point in units and dollars3. Find the number of packages Trendy Toes needs to sell to earn a $26,000 operating income.

Answer 1

1. $0.9; 50%

2. 100,000; 180,000

3. 128,889

Step-by-step explanation:

(1)

Contribution Margin per Unit :

= Selling Price per Unit - Variable Cost per Unit

= 1.80 - $0.90

= $0.90

Contribution Margin Ratio :

= Contribution Margin per Unit ÷ Selling Price per Unit

= $0.90 ÷ $1.80

= 0.5 or 50%

(2) Break Even Point in Units :

Break even Sales in Units :

= Fixed Expenses ÷ contribution margin per unit

= $90,000 ÷ 0.90

= 100,000

Break-even Sales in dollars :

= Fixed Expenses ÷ Contribution Margin Ratio

= $90,000 ÷ 0.5

= $180,000

(3) Number of packages required to be sold to earn $26,000 Operating Income:

Contribution required = Income + Fixed Expenses

= $26,000 + $90,000

= $116,000

Contribution per unit = 0.9

No. of units required to be sold = $116,000 ÷ 0.9

= 128,889

The number of packages to achieve an operating income of $26000 is 128,889.