Cranberry Wood Products Inc. spends an average of $9.50 in labor and $12.40 in materials on every

Question:

Cranberry Wood Products Inc. spends an average of $9.50 in labor and $12.40 in materials on every unit it sells. Sales commissions and shipping amount to another $3.10. All other costs are fixed and add up to $140,000 per month. The average unit sells for $32.00.

a. What are Cranberry’s contribution and contribution margin?

b. What is the firm’s breakeven point in units?

c. Calculate the dollar breakeven point in two ways.

d. Sketch the breakeven diagram.

e. Calculate the DOL when sales are 20%, 30%, and 40% above breakeven.

Contribution Margin
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...