Problem 1: The Peace Company has the following functional income statement for the prior month.
Sales ($50 * 100,000 units) $5,000,000
Cost of goods sold
Direct materials $1,200,000
Direct labor $950,000
Variable factory overhead $600,000
Fixed factory overhead $850,000 $3,600,000
Gross profit $1,400,000
Selling and administrative expense
Variable
Fixed
Operating income
There were no beginning and ending inventories.
Required:
a. Calculate the contribution margin per unit.
b. Calculate the contribution margin ratio.
c. What is the break-even point in units?
d. What is the amount of sales in dollars needed to obtain a before-tax profit of $40,000?
Problem 2: Suzy Manufacturing has estimated monthly sales of 18,000 units for $48 per unit. Variable costs include manufacturing costs of $27 and distribution costs of $9. Fixed costs are $60,000 per month.
Required -
Determine each of the following values.
a. Unit contribution margin
b. Monthly break-even unit sales volume
c. Before-tax monthly profit
d. Monthly margin of safety in units