The information that follows was obtained from the accounting records of Portofino Manufacturing during a period when the company sold 100,000 units.Sales revenue$8,800,000Variable costs2,400,000Fixed costs6,016,000Required: A. Compute the company's per-unit contribution margin and break-even point in units.B. How many units must Portofino sell to produce a target profit of $550,400?C. Assume that Portofino was able to reduce the variable cost per unit by $4. What selling price could management charge if it desired to maintain the current break-even point?D. Depreciation charges of $640,000 are included in the firm's fixed costs of $6,016,000. If these charges were to increase by 10%, what effect, if any, would this cost increase have on the company's contribution margin?
What will be an ideal response?
A.
| Sales revenue | $8,800,000 |
| Less: Variable costs | 2,400,000 |
| Contribution margin | $6,400,000 |
Per-unit contribution margin: $6,400,000 ÷ 100,000 units = $64
Break-even point: Fixed costs ($6,016,000) ÷ $64 = 94,000 units
B. Unit sales to earn $550,400: ($6,016,000 + $550,400) ÷ $64 = 102,600
C. The current selling price is $88 per unit ($8,800,000 ÷ 100,000 units). Portofino must maintain the same per-unit contribution margin to achieve a break-even point of 94,000 units. Thus, the $4 reduction in variable cost must be matched by a $4-per-unit reduction in revenue, yielding a selling price of $84 ($88 - $4).
D. No effect. A change in fixed costs does not impact the contribution margin (sales price - variable cost).
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