D196 - (FORMULA & HOW TO'S) PRINCIPLES OF
FINANCIAL AND MANAGERIAL ACCOUNTING
The founders of Yvonne Company—Yvonne, Ross, and Harold—are disappointed with
the financial performance of their business so far. Yes, they are making money, but the
monthly profit of their business has not been enough to justify their quitting their
individual jobs in which they had been highly paid. Yvonne, Ross, and Harold have
determined that their business needs to generate a total contribution margin of at least
$27,000 per month in order for them to continue; otherwise, they will shut down their
company and go back to working their former jobs. They would like to know how many
units of their product they need to sell each month to generate this $27,000 total
contribution margin.
Yvonne Company reported the following data.
Price per unit = $20
Fixed cost per month = $6,000
Variable cost per unit = $11
How many units must Yvonne Company sell each month in order to reach a total
contribution margin of $27,000?
Units required = Required total contribution margin / contribution margin per unit sold
Contribution margin per unit sold = Price per unit - Variable cost per unit
Units required = $27,000 / ($20 - $11)
Units required = $27,000 / $9
Units required = 3,000 units
You have been hired to help Garcia Company perform certain types of cost-volume-
profit analysis. You attend a meeting with the owners and founders of the company—
Talia and Daniel Garcia—and their accountant. The accountant has been able to
prepare the following information for this meeting:
Contribution margin ratio 15%
Fixed costs $100,000
Daniel asks you to help them calculate what the break-even sales revenue would be for
the company for future planning purposes. Based on the above data, what is the break-
even sales revenue?
$150,000
$666,667
$623,459
$415,000
, Contribution margin ratio + Variable cost ratio = 100%
15% + Variable cost ratio = 100%
Variable cost ratio = 85%
Let X designate the break-even level of sales revenue.
X – 0.85X – $100,000 = $0
0.15X = $100,000
X = $666,667
1/1
A new product line manager approaches you in order to understand how cost behavior
and cost-volume-profit analysis affect the overall profitability of the product line for which
the manager is currently responsible. You have been able to gather the following cost
information for the product line:
Average selling price per unit: $10
Fixed manufacturing costs per year: $50,000
Fixed selling and administrative costs per year: $50,000
Total variable costs per unit: $7.50
The product line manager is trying to calculate the break-even point for this product line,
using the information you have provided above. What is the contribution margin ratio for
this product line, based upon the above information?
25%
50%
35%
45%
Contribution margin ratio = $ contribution margin per unit / average selling price per unit
$ contribution margin per unit = average selling price per unit - total variable costs per
unit
$ contribution margin per unit = $10 - $7.50 = $2.50
Contribution margin ratio = $2.50 / $10.00 = 25%.
What is the Hospital's contribution margin per treatment?
Sales Price - Variable Cost = Contribution Margin: 60 - 30 = $30 CMU
FINANCIAL AND MANAGERIAL ACCOUNTING
The founders of Yvonne Company—Yvonne, Ross, and Harold—are disappointed with
the financial performance of their business so far. Yes, they are making money, but the
monthly profit of their business has not been enough to justify their quitting their
individual jobs in which they had been highly paid. Yvonne, Ross, and Harold have
determined that their business needs to generate a total contribution margin of at least
$27,000 per month in order for them to continue; otherwise, they will shut down their
company and go back to working their former jobs. They would like to know how many
units of their product they need to sell each month to generate this $27,000 total
contribution margin.
Yvonne Company reported the following data.
Price per unit = $20
Fixed cost per month = $6,000
Variable cost per unit = $11
How many units must Yvonne Company sell each month in order to reach a total
contribution margin of $27,000?
Units required = Required total contribution margin / contribution margin per unit sold
Contribution margin per unit sold = Price per unit - Variable cost per unit
Units required = $27,000 / ($20 - $11)
Units required = $27,000 / $9
Units required = 3,000 units
You have been hired to help Garcia Company perform certain types of cost-volume-
profit analysis. You attend a meeting with the owners and founders of the company—
Talia and Daniel Garcia—and their accountant. The accountant has been able to
prepare the following information for this meeting:
Contribution margin ratio 15%
Fixed costs $100,000
Daniel asks you to help them calculate what the break-even sales revenue would be for
the company for future planning purposes. Based on the above data, what is the break-
even sales revenue?
$150,000
$666,667
$623,459
$415,000
, Contribution margin ratio + Variable cost ratio = 100%
15% + Variable cost ratio = 100%
Variable cost ratio = 85%
Let X designate the break-even level of sales revenue.
X – 0.85X – $100,000 = $0
0.15X = $100,000
X = $666,667
1/1
A new product line manager approaches you in order to understand how cost behavior
and cost-volume-profit analysis affect the overall profitability of the product line for which
the manager is currently responsible. You have been able to gather the following cost
information for the product line:
Average selling price per unit: $10
Fixed manufacturing costs per year: $50,000
Fixed selling and administrative costs per year: $50,000
Total variable costs per unit: $7.50
The product line manager is trying to calculate the break-even point for this product line,
using the information you have provided above. What is the contribution margin ratio for
this product line, based upon the above information?
25%
50%
35%
45%
Contribution margin ratio = $ contribution margin per unit / average selling price per unit
$ contribution margin per unit = average selling price per unit - total variable costs per
unit
$ contribution margin per unit = $10 - $7.50 = $2.50
Contribution margin ratio = $2.50 / $10.00 = 25%.
What is the Hospital's contribution margin per treatment?
Sales Price - Variable Cost = Contribution Margin: 60 - 30 = $30 CMU
