Question

In 2019, Wildhorse Company had a break-even point of $244,000 based on a selling price of $5 per unit and fixed costs of $97,600. In 2020, the selling price and the variable costs per unit did not change, but the break-even point increased to $442,000.

Compute the variable costs per unit and the contribution margin ratio for 2019. (Round Variable cost per unit to 2 decimal places, e.g. 2.25 and Contribution margin ratio to 0 decimal places, e.g. 20.)

Answer 1

unitary variable cost= $3

contribution margin ratio= 0.4

Step-by-step explanation:

Giving the following information:

break-even point= $244,000

the selling price= $5 per unit

Fixed costs of $97,600.

First, we need to calculate the contribution margin ratio, we will use the following formula:

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

244,000= 97,600/contribution margin ratio

contribution margin ratio= 97,600/244,000

contribution margin ratio= 0.4

Now, we can calculate the unitary variable cost:

contribution margin ratio= (selling price - unitary variable cost)/seling price

0.4= (5 - unitary variable cost)/5

2= 5 -unitary variable cost

unitary variable cost= 3