Assignment 3 – Review Problems Contribution margin and ratio

Assignment 3 – Review Problems Contribution margin and ratio

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: 

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:

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:

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

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:

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?