Answer:
1. Selling price per unit = $7.60
2. Variable cost per unit = $80; Contribution margin ratio = 33.33%
Explanation:
Requirement 1
We use the formula,
Break-even point (in units) = Fixed cost ÷ (Price per unit - Variable cost)
Where,
Fixed cost = $349,600
Price per unit = Total sales ÷ Total units (to determine the sales price)
Variable cost per unit = $4.56
At the break-even point, selling 115,000 units results in neither profit nor loss.
This leads to the equation: 115,000 = $349,600 ÷ (Price per unit - $4.56)
or, 115,000 × (Price per unit - $4.56) = $349,600
thus, Price per unit - $4.56 = $349,600 ÷ 115,000
which gives us Price per unit = $3.04 + $4.56 = $7.60
Requirement 2
Sooner Industries
Income statement (contribution margin format)
For 15,600 units sold
Unit Total (%)
Sales revenue $120 $1,872,000 100
(-) Variable expense $(80) (3) $(1,248,000) (2) 66.67
Contribution Margin $40 $624,000 (1) 33.33 (4)
(-) Fixed expense $(458,000) 24.47
Net operating income $166,000 8.86
Note - 1:
Contribution Margin - Fixed expense = Net Income
or, Contribution Margin - $458,000 = $166,000
or, Contribution Margin = $166,000 + 458,000
or, Contribution Margin = $624,000
Note - 2:
Sales - Variable expense = Contribution margin
or, $1,872,000 - Variable expense = $624,000 (From Note - 1)
or, Variable expense = $1,248,000
Note - 3:
Variable cost per unit = Total Variable expense ÷ number of units sold
or, Variable cost per unit = $1,248,000 ÷ 15,600
or, Variable cost per unit = $80
Note - 4:
Contribution margin ratio = (Contribution Margin ÷ Total sales) × 100
or, Contribution margin ratio = ($624,000 ÷ $1,872,000) × 100
or, Contribution margin ratio = 33.33%
