EXERCISE 6-1

Contribution format income statement under each of conditions each case :

1. The sales volume increases by 100 units.

ITEM TOTAL PER UNIT

Sales ( 10, 100 units) $ 353, 500 $ 35
(-) variable expenses ( 202, 000 ) ( 20. 00 )
Contribution margin 151, 500 $ 15
(-) fixed expenses ( 135, 000 )
Net operating income $ 16, 500

2. The sales volume decreases by 100 units.

ITEM TOTAL PER UNIT

Sales ( 9, 900 units) $ 346, 500 $ 35
(-) variable expenses ( 198, 000 ) ( 20. 00 )
Contribution margin 148, 500 $ 15
(-) fixed expenses ( 135, 000 )
Net operating income $ 13, 500

3. The sales volume is 9, 000

ITEM TOTAL PER UNIT

Sales ( 9, 000 units) $ 315, 000 $ 35
(-) variable expenses ( 180, 000 ) ( 20. 00 )
Contribution margin 135, 000 $ 15
(-) fixed expenses ( 135, 000)
Net operating income 0

EXERCISE 6-5
 Selling price - $ 15
Variable cost - $ 12 per unit
Fixed expenses - $ 4, 200

1. Unit sales using the equation method :

Sales = variable expenses + fixed expenses + profit

$ 15 Q = $ 12Q + $ 4, 200 + $ 0
$ 3Q = $ 4, 200
Q = $ 1, 400

2. In sales dollars using the equation method and the CM ratio :

CM ratio = contribution margin / sales

Sales $ 15
( - ) vc exp $ 12
Contribution margin $ 3

CM ratio = $ 3 / $15 = 20 %

X = 0.8 X + $ 4, 200 + $ 0
0.2 X = $ 4, 200
X = $ 21, 000 or $ 15 per unit, 1, 400 unit

3. In unit sales using the contribution margin :

Break – even point in unit sold = fixed expenses / unit contribution margin
$ 4, 200 / $ 3 per unit = 1, 400 unit

4. In sales dollar using the contribution margin and the CM ratio :

Break – even point in total sales dollar = fixed expenses / CM ratio

$ 4, 200 / 0.2 = $ 21, 000