QUESTION 1

1. Bridal Shoppe sells wedding dresses. The cost of each dress is

comprised of the following: Selling price of $1,000 and variable
(flexible) costs of $400. Total fixed (capacity-related) costs for
Bridal Shoppe are $90,000.

A. What is the contribution margin per dress?

Contribution margin per dress = Selling price - Variable cost per dress
$1,000 - $400 = $600

B. What is contribution Margin?

Contribution margin = contribution margin per dress x Total fixed costs
= $600x$90,000
= $54,000,000

C. What is contribution margin ratio?

Contribution margin ratio= Contribution margin per dress / selling price per dress

=$600/$1,000=0.6%

D. What is the Bridal Shoppe’s total profit when 200 dresses are sold?

Revenues – Flexible Costs – Capacity-Related Costs = Total Profit

200 ($1,000) – 200($400) - $90,000 = $30,000

E. How many dresses must Bridal Shoppe sell to reach the breakeven
point?

X = Capacity-Related Costs/Contribution Margin

X = $90,000/$600
X = 150 dresses
F. How much should be the sale to break even?

Break even in dollars

= breakeven point in dresses * sales price
=150 dresses*$1000
=$150000

G. How many dresses must Bridal Shoppe sell to yield a profit of

$60,000?

Total Revenues – Total Costs = Total Profit

$1,000X - $400X - $90,000 = $60,000

$600X = $150,000
X = $150,000/$600
X = 250 dresses

H. What should be the level of sale to earn a profit of $70,000?

Sales Revenue - Variable costs - Fixed costs = Profit

$1,000x-$400x-$90,000=$70,000
-$399x-$90=$70
-$399x-$90+$90=$70+$90
-$399x=$160
-$399x/-$399=$160/-$399
x=-160/399
x=-0.40100..
QUESTION 2
Northenscold Company sells several products. Information of average revenue and
costs are as follows:
Selling price per unit $20.00
Variable costs per unit:
Direct materials $4.00
Direct manufacturing labor $1.60
Manufacturing overhead $0.40
Selling costs (Marketing) $2.00
Annual fixed costs $96,000
1. Calculate the contribution margin per unit.
CM=$20-$4-$1.60-$0.40-$2=$12

ContributionMarginRatio=CM/Selling Price=12/20=0.6

Thus, the breakeven point in total sales dollars is:

Fixed Costs = 96000/0.6 = $160,000

2. Calculate the number of units Northenscold’s must sell each year to break
even.
FC/CM
96000/12 =8000units

3. Calculate the number of units Northenscold’s must sell to yield a profit of

$144,000.
(FC+ Profits)/CM
= 96000+144000/12
= 20000 units

4. Calculate degree of operating Leverage (DOL).

5. What will be the break even sales and units to break even if direct material
per units increase to $6 per unit?
break even point in total sales dollars is:

Fixed Costs/ Contribution Margin RATIO = 96000/0.6 = $160,000

6. calculate margin of safety

Margin of safety = Actual sales – Break-even sales

=$96,000-$160,000
=-$64,000

3. Berhannan’s Cellular sells phones for $100. The unit variable cost per
phone is $50 plus a selling commission of 10%. Fixed manufacturing costs
total $1,250 per month, while fixed selling and administrative costs total
$2,500.
A. What is the contribution margin per phone?

CM per phone = $100 - $60 = $40

B. What is the breakeven point in phones?

Breakeven in phones FC/CM = 3750/40

Breakeven Point = 94 phones

c. How many phones must be sold to earn a targeted profit of $7,500?

(FC+ Profits)/CM = (3750+7500)/40 = 281.25 phones

To achieve target profit: Must sell 282 phones