Question

Firebird Mfg. Co. has a contribution margin ratio of 40 percent and must sell 80,000 units at a price of $90 each in order to break even. a. Compute total fixed costs. b. Compute variable cost per unit.

Answer 1

$2,880,000 = fixed costs

$54= unitary variable cost

Step-by-step explanation:

Giving the following information:

Firebird Mfg. Co. has a contribution margin ratio of 40 percent and must sell 80,000 units at a price of $90 each in order to break even.

To calculate the fixed costs, we need to use the following formula:

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

(80,000*90) = fixed costs / 0.4

7,200,000*0.4 = fixed costs

$2,880,000 = fixed costs

Now, the unitary variable cost:

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

80,000 = 2,880,000 / ( 90 - unitary variable cost)

80,000*90 - 80,000unitary variable cost = 2,880,000

7,200,000 - 2,880,000 = 80,000unitary variable cost

4,320,000/80,000= unitary variable cost

$54= unitary variable cost