Question

Complete the following table. 2. Suppose Sandy Bank sells its canoes for $530 each. Calculate the contribution margin per canoe and the contribution margin ratio. 3. This year Sandy Bank expects to sell 800 canoes. Prepare a contribution margin income statement for the company. 4. Calculate Sandy Bank’s break-even point in units and in sales dollars. 5. Suppose Sandy Bank wants to earn $80,000 profit this year. Calculate the number of canoes that must be sold to achieve this target.

Answer 1

2.

Unit contribution margin = price per unit-variable cost per unit

= $530 - 145

= $385

Ratio of margin of profit = profit margin / sales price

= 385 / 530

= 72.64%.

3.

Sales = 800 * 530 = 424,000

Variable costs = 800 * 145 = 116,000

Sales of 800 units 448,000

Variable costs of 800 units 116,000

Contribution margin 308,000

Fixed costs 147,400

Income from operations 184,600

4.

Break-even units = fixed costs / contribution margin per unit

= 147,400 / 385

= 382.85 units, rounded off to 383 units

Break-even sales revenue

= break-even units * sales price

= 383*530 = $ 202,990

5.

For profit of 80,000, contribution margin = fixed costs + profit

= 147,400 + 80,000 = 227,400

Target sales units = contribution margin / contribution margin per unit

= 227,400 / 385

= 590.64 units, rounded off to 591 units