Contribution Margin Ratio, Break-Even Sales Revenue, Sales Revenue for Target Profit
Schylar Pharmaceuticals, Inc., plans to sell 130,000 units of antibiotic at an average price of $22 each in the coming year. Total variable costs equal $1,086,800. Total fixed costs equal $8,000,000.

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30-11-2022
Business

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Contribution Margin Ratio, Break-Even Sales Revenue, Sales Revenue for Target Profit
Schylar Pharmaceuticals, Inc., plans to sell 130,000 units of antibiotic at an average price of $22 each in the coming year. Total variable costs equal $1,086,800. Total fixed costs equal $8,000,000.

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Qwline Qwline · Answer 1 · 2022-12-02T19:01:31+01:00

Part a: The contribution margin per unit is $13.64 per unit and the contribution margin ratio is 0.62

Part b: The sales revenue needed to break even is $12,903,226.

Part c: The sales revenue needed to earn a target profit of $245,000 is $13,298,387

Part d: The contribution margin per unit is $15.14 per unit, the contribution margin ratio is 0.6443, the sales revenue needed to break even is $12,416,576 and the sales revenue needed to earn a target profit of $245,000 is $12,796,834

Under cost-volume-profit (CVP) analysis, all costs are classified as either variable or fixed. When costs are classified like this, break-even and target-profit analyses can be conducted. The break-even point is the same as the target profit analysis where the profit is zero. The break-even point and target profit can be expressed in sales revenue or units sold.

Part a:

Contribution Margin per Unit

The contribution margin per unit is calculated using the following formula.

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

To calculate the variable cost per unit, use the following formula.

Variable cost per unit = Total variable costs / Units sold

Variable cost per unit = $1,086,800 / 130,000 units = $8.36 per unit

Contribution margin per unit = $22 per unit - $8.36 per unit = $13.64 per unit

Contribution Margin Ratio

The contribution margin ratio is calculated using the following formula.

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

Contribution margin ratio = $13.64 per unit / $22 per unit = 0.62

The contribution margin ratio is 0.62.

Part b:

The break-even point is sales revenue is calculated using the following formula.

Break-even sales revenue = Total fixed costs / Contribution margin ratio

Break-even sales revenue = $8,000,000 / 0.62 = $12,903,226

The sales revenue needed to break even is $12,903,226.

Part c:

The sales revenue needed to earn a target profit is calculated using the following formula.

Sales revenue = (Total fixed costs + Target profit) / Contribution margin ratio

Sales revenue = ($8,000,000 + $245,000) / 0.62 = $8,245,000 / 0.62 = $13,298,387

The sales revenue needed to earn a target profit of $245,000 is $13,298,387.

Part d:

Contribution Margin per Unit

The selling price increased but there is no change to the variable cost per unit or the total fixed costs.

Contribution margin per unit = $23.50 per unit - $8.36 per unit = $15.14 per unit

The contribution margin per unit is $15.14 per unit.

Contribution Margin Ratio

Contribution margin ratio = $15.14 per unit / $23.50 per unit = 0.6443

The contribution margin ratio is 0.6443.

Break-even Sales Revenue

Break-even sales revenue = $8,000,000 / 0.6443 = $12,416,576

The sales revenue needed to break even is $12,416,576.

Sales Revenue for a Target Profit

Sales revenue = ($8,000,000 + $245,000) / 0.6443 = $8,245,000 / 0.6443 = $12,796,834

The sales revenue needed to earn a target profit of $245,000 is $12,796,834.

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Contribution Margin Ratio, Break-Even Sales Revenue, Sales Revenue for Target Profit Schylar Pharmaceuticals, Inc., plans to sell 130,000 units of antibiotic at an average price of $22 each in the coming year. Total variable costs equal $1,086,800. Total fixed costs equal $8,000,000.

Respuesta :

Otras preguntas

Contribution Margin Ratio, Break-Even Sales Revenue, Sales Revenue for Target Profit
Schylar Pharmaceuticals, Inc., plans to sell 130,000 units of antibiotic at an average price of $22 each in the coming year. Total variable costs equal $1,086,800. Total fixed costs equal $8,000,000.