In 2015 Stallman Co. had a break-even point of $800000 based on a selling price of $10 per unit and fixed costs of $200000. In 2016 the selling price and variable costs per unit did not change but the break-even point increased to $840000.
Instructions
(a) Compute the variable cost per unit and the contribution margin ratio for 2015.
(b) Using the contribution margin ratio compute the increase in fixed costs for 2016.

Question

Adrian Ricketts · Accepted Answer

Final Answer :   Unit contribution margin  =  Fixed Costs   Break-even Sales in units  = $ 200 , 000 ( $ 800 , 000 ÷ $ 10 ) 	ext { Unit contribution margin }=\frac{	ext { Fixed Costs }}{	ext { Break-even Sales in units }}=\frac{\$ 200,000}{(\$ 800,000 \div \$ 10)}  Unit contribution margin  =  Break-even Sales in units   Fixed Costs  ​ = ( $800 , 000 ÷ $10 ) $200 , 000 ​ = $ 200 , 000 80 , 000 = $ 2.50  Variable cost per unit  = $ 10 − $ 2.50 = $ 7.50  Contribution margin ratio  = $ 2.50 ÷ $ 10 = 25 % \begin{array}{l}=\frac{\$ 200,000}{80,000}=\$ 2.50 \\	ext { Variable cost per unit } \quad=\$ 10-\$ 2.50=\$ 7.50 \	ext { Contribution margin ratio } \quad=\$ 2.50 \div \$ 10=25 \% \\end{array} = 80 , 000 $200 , 000 ​ = $2.50  Variable cost per unit  = $10 − $2.50 = $7.50  Contribution margin ratio  = $2.50 ÷ $10 = 25% ​ (b)  Fixed costs  =  Break-even Sales  ×  CM Ratio  = $ 840 , 000 × 25 % = $ 210 , 000 \begin{aligned}	ext { Fixed costs }  &  =	ext { Break-even Sales } 	imes 	ext { CM Ratio } \ &  =\$ 840,000 	imes 25 \%=\$ 210,000\end{aligned}  Fixed costs  ​ =  Break-even Sales  ×  CM Ratio  = $840 , 000 × 25% = $210 , 000 ​ Therefore fixed costs increased   $ 10.000  \$ 10.000  $10.000   (\$210.000 -   $ 200.000 )  \$ 200.000)  $200.000 )  .

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