Question

Voltar Company manufactures and sells a telephone answering machine. The company's contribution format income statement for the most recent year is given below:

Total Per unit Pct. of sales (Ratios)
Sales $1,200,000 $60 100%
Less: variable expenses 900,000 45 ?%
Contribution margin 300,000 15 ?%
Less: fixed expenses 240,000
Net operating income $60,000

(a) What is the Contribution Margin (CM) Ratio (or percent of sales)?
(b) Calculate break-even point both in total units and total sales dollars.

Answer 1

Answer:

A. Contribution Margin Ratio = 25%

B. Break even point (In dollars) = $960,000

    Break even point (in units) = 16,000

Explanation:

The computation of Contribution Margin Ratio and break-even point both in total units and total sales dollars is given below:-

A. Contribution Margin Ratio = Contribution ÷ Sales × 100

= $300,000 ÷ 1200,000 × 100

= 25%

B. Break even point (In dollars) = Fixed cost ÷ Contribution margin ratio

= $240,000 ÷ 25%

= $960,000

Break even point (in units) = Break even point ÷ price per unit

= $960,000 ÷ $60

= 16,000 Units