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Cost-Volume Profit Analysis Recline Company is planning to produce and sell 11,250 units of its only product at a unit price of $106. At this sales level Recline Company will generate $405,000 in total contribution margin and incur fixed costs of $25/unit. a. Calculate Recline’s contribution margin ratio. Round answer to the nearest whole percentage (ex: 0.3456 = 35%) Answer % b. Calculate the break-even point in sales dollars for Recline. Use your rounded answer from part a. above and then round final answer to the nearest dollar. $Answer

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Answer:

Calculate Recline’s contribution margin ratio.  

Contribution Margin RATIO  34%

Calculate the break-even point in sales dollars for Recline.    

Break-Even Point  $1.030.556

Explanation:

  • The contribution margin it's determined by the total amount of Gross Profit divided by the total value of sales. To this case $405,000/$1,192,500 = 34%

      Income Statement

11.250       Quantities

$106          Unit Price

$1,192,500 Sales

-$787,500 Cost of goods sold

$405,000 Contribution Margin  34%

-$281,250 Fixed Cost

$123,750 Operating Income

  • The Break Even point it's when the Operating Income is equal to zero, it means the lowest level of sales the company can afford and not loss money.

 BREAK EVEN POINT

9.722        Quantities

$106         Unit Price

$1,030,556 Sales

-$787,500 Cost of goods sold

$243,056 Contribution Margin

-$243,056 Fixed Cost

$0            Operating Income

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