Question

Sheridan Bucket Co., a manufacturer of rain barrels, had the following data for 2019.
Sales 2,080 units
Sales price $60 per unit
Variable costs $42 per unit
Fixed costs $18,720
Required:
a. What is the contribution margin ratio? (Round answer to 0 decimal places, e.g. 5,275.)
b. What is the break-even point in dollars? (Round intermediate calculation and final answers to 0 decimal places, e.g. 5,275.)

Answer 1

Answer:

a. 30%

b. $62,400

Explanation:

a. The contribution margin ratio is

Contribution margin ratio = (Contribution margin per unit) ÷ (selling price per unit) × 100  

where,

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

= $60 - $42

= $18

So, the Profit volume ratio = ($18) ÷ ($60) × 100 = 30%

b. Now the break even point in dollars is

= Fixed cost ÷ Contribution margin ratio

= $18,720 ÷ 30%

= $62,400