Question

Current operating income for Bay Area Cycles Co. is $44,000. Selling price per unit is $100, the contribution margin ratio is 20%, and fixed expense is $176,000. Required: 1. Calculate Bay Area Cycle’s per unit variable expense and contribution margin. How many units are currently being sold?

Answer 1

• Unit variable expense $80

• Contribution margin $20

• Units currently being sold 8,800 units

Step-by-step explanation:

1.a Bay area's per unit variable expense

Contribution margin =Sales per unit - Variable cost per unit

Therefore;

Variable cost/expense per unit = Selling price per unit - Contribution margin

= $100 - $20

= $80

b. Contribution margin

= Selling price per unit × Contribution margin ratio

= 100 × 20%

= $20

2. How many units are currently being sold.

• Break even points in units

= Fixed expenses ÷ contribution margin per unit

Where;

Contribution margin per unit = Selling price per unit × Contribution margin ratio

= $176,000 ÷ $20

= 8,800 units