Answer:1) contribution margin per unit=$4.7230
2) contribution margin ratio= 80.050%
3) Break even unit=8,722
4)Break Even sales revenue=$51,461
5) operating income =$165,305
6)Margin of safety=$155,039
7)New Breakeven units=8130 units
8)yes the price should be increased, because at a lower quantity it will break even.
Explanation:
Contribution margin =Selling price-fixed cost
(5.9×35,000)-(34,475+6,720)
=206,500-41,195=$165,305
Contribution margin per unit=165,305/35000=$4.7230
Contribution margin ratio=unit contribution margin/unit selling price×100
4.723/5.9×100=80.0508%
Break even unit=fixed cost/unit contribution Margin=41,195/4.7230
=8,722 units
Break even revenue=fixed cost/contribution Margin ratio
41195/0.800508=$51,461
Operating income =sales revenue-fixed cost=206500-41,195=$165,305
When and if selling price =$6.50 , sales=28,750
Contribution Margin=total revenue-total fixed cost
=28750×6.5-41,195=$145,680
Unit CM=CM/sales unit
=145,680/28,759=5.06713
CM ratio=5.06713/6.5=0.7796
BEV sales=FC/CMR=41,195/0.7796=$52,841
Breakeven BEV units=fixed cost/contribution Margin ratio
=41195/5.0671=8,130 units
It is better to increase price to$ 6.5 because the fixed cost was defrayed at a much lower quantity of 8,130 when compared to 8,722 units.
