EasyWriter manufactures an erasable ballpoint pen, which sells for $1.75 per unit. Management recently finished analyzing the
Question:
EasyWriter manufactures an erasable ballpoint pen, which sells for $1.75 per unit. Management recently finished analyzing the results of the company’s operations for the current month. At a break-even point of 40,000 units, the company’s total variable costs are $50,000 and its total fixed costs amount to $20,000.
a. Calculate the contribution margin per unit.
b. Calculate the company’s margin of safety if monthly sales total 45,000 units.
c. Estimate the company’s monthly operating loss if it sells only 38,000 units.
d. Compute the total cost per unit at a production level of
(1) 40,000 pens per month and
(2) 50,000 pens per month. Explain the reason for the change in unit costs.
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Step by Step Answer:
Financial and Managerial Accounting the basis for business decisions
ISBN: 978-0078111044
16th edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello