Bloom Company predicts it will incur fixed costs of $160,000 and earn income of $164,000 in the next period. Its expected contribution margin ratio is 25%.
1. Compute the amount of expected total dollar sales.
2. Compute the amount of expected total variable costs.
Explanation
2.
(Alternatively: $1,296,000 in sales × [1 − 0.25 CM ratio] = $972,000)
Sunn Company manufactures a single product that sells for $180 per unit and whose variable costs are $135 per unit. The company’s annual fixed costs are $562,500. The sales manager predicts that next year’s annual sales of the company’s product will be 40,000 units at a price of $200 per unit. Variable costs are predicted to increase to $140 per unit, but fixed costs will remain at $562,500. What amount of income can the company expect to earn under these predicted changes?
Prepare a contribution margin income statement for the next year.
Thanks
Sunn Company manufactures a single product that sells for $180 per unit and whose variable costs are $135 per unit. The company’s annual fixed costs are $562,500. Management targets an annual income of $1,012,500.
Explanation
(1)
Unit sales at target income = (Fixed costs + Target income) / Contribution margin per unit
= ($562,500 + 1,012,500) / $45
= 35,000 units
(2)
Dollar sales at target income = (Fixed costs + Target income) / Contribution margin ratio
= ($562,500 + 1,012,500) / 25%
= $6,300,000
(Alternatively: 35,000 units × $180 = $6,300,000)
