Accounting

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Other formulas needed outside of the reading material:

Sales = Variable expenses + Fixed expenses +Profit

Sales = Quantity * Units

Profit = (Sales × CM ratio) – Fixed Cost

Review Problems : Contribution margin and ratio

Problem 1: (10 points)

Sales per unit = $250
Variable Cost per unit = $150

Units = 350

a) Calculate Contribution Margin Per Unit (2 points)

b) Calculate Contribution Margin (CM) Ratio Per Unit (3 points)

c) Calculate Total Contribution Margin (CM) Dollars (5 points)

Problem 2: (5 points)

Sales = $5,000,000
CM Ratio = 0.40
Fixed cost = $1,600,000

Calculate Profit.

Problem 3: (5 points)

A company has budgeted sales of $200,000, a profit of $60,000 and fixed expenses of $40,000.

Calculate contribution margin ratio.

Review Problem : Break-even point

Problem 4: (15 points)

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)? (5 points)

b) Calculate break-even point both in total units and total sales dollars. (10 points)

Problem 5: (15 points)

Management is anxious to improve the company's profit performance. Assume that next year management wants the company to earn a minimum profit of $90,000.

How many units will have to be sold to meet the target profit figure?