Question

In the month of March, Concord Salon services 640 clients at an average price of $100. During the month, fixed costs were $18,360 and variable costs were 66% of sales.

a. Determine the contribution margin in dollars, per unit, and as a ratio.
b. Using the contribution margin technique, compute the break-even point in dollars and in units.

Answer 1

a.

Contribution margin in dollars is 21760.

Contribution margin per unit 34.

Contribution margin ratio is 34%.

b.

Break even in dollars is $54000

Break even in units is 540 units.

Step-by-step explanation:

a.

The contribution margin can be defined as the amount product is contributing towards the fixed costs after all variable costs have been deducted.

The contribution margin in dollars can be calculated by dividing the total variable costs from the total revenue.

Contribution margin in dollars = 640 * 100 - (640 * 100 * 0.66) = $21760

The contribution margin per unit can be calculated by deducting the per unit variable cost from per unit selling price.

Contribution margin per unit = $100 - (100 * 0.66) = $34 per unit

The contribution margin ratio can be calculated by dividing per unit contribution margin by per unit selling price.

Contribution margin ratio = 34 / 100 = 0.34 or 34%

b.

Breakeven point in units can be calculated by dividing the total fixed costs by the per unit contribution margin.

Breakeven point in units = 18360 / 34 = 540 clients.

Breakeven in dollars can be calculated by dividing the fixed costs by the contribution margin ratio.

Break even in dollars = 18360 / 0.34 = $54000