1. A company had the following results for this year:

Sales (15,000 units)

Variable expenses

Fixed expenses

Net profit

Answer the following questions independently.

$300,000 180,000 80,000 S40.000

(a) What are the company's breakeven sales in dollars?

(b) What are the company's breakeven sales in units?

(c) What is the company's contribution margin in dollars?

(d) What is the company's contribution margin ratio?

(e) How many additional units must be sold to increase net profit from the current $40,000 to $100,000?

2. Kelly Hayes operates a bed and breakfast hotel in a beach resort area of Noosa. Depreciation on the hotel is $60,000 per year. Kelly employs a maintenance person at an annual salary of $30,000 per year and a cleaning person at an annual salary of $24,000 per year. Rates and taxes are $10,000 per year. The rooms rent at an average price of $50 per person per night including breakfast. Other costs are laundry service at $4.00 per person per night and the cost of food which is $6.00 per person per night.

Instructions:

(a) Determine the number of rentals and the sales revenue Kelly needs to break even using the contribution margin technique.

(b) If the current level of rentals is 4,000, by what percentage (Margin of Safety) can rentals decrease before Kelly has to worry about having a net loss?

(c) Kelly is considering upgrading the breakfast service to attract more business and increase prices. This will cost an additional S5.00 for food costs per person per night. Kelly feels she can increase the room rate to 565 per person per night. Determine the number of rentals and the sales revenue Kelly needs to break even if the changes are made.

Answer rating: 100% (QA)

1 a Breakeven sales in dollars Fixed Expenses Contribution Margin Ratio 80000 300000 180000 x 300000 ... View the full answer