The following information describes a product expected to be produced and sold by Hadley Company:selling price$80 per unit variable costs$32 per unit
Toatal fixed costs$ 630,000
Required:
(a) calculate the contribution margin in units.
(b) calculate the break-even point in units and in dollar sales.
(c) What dollar amount of sales would be necessary to achieve an income of $120,000?

a. Contribution margin per unit is $48 per unit

b. Break-even point in units is 13,125 units; and Break-even point in dollar sales is $1,050,000

c. Dollar amount of sales to achieve $120,000 income is $1,250,000.

Explanation:

These can be determined as follows:

(a) calculate the contribution margin in units.

Contribution margin in units is the selling price per unit minus the variable cost per unit that produces incremental earning for each unit sold. This can be calculated as follows:

Contribution margin per unit = Selling price per unit - Variable cost per unit = $80 - $32 = $48 per unit

b) Calculate the break-even point in units and in dollar sales.

Break even point is the point at which there is no net loss or gain, i.e. where total revenue is equal to to cost. This can be calculated both in units and dollar sales as follows:

Break-even point in units = Total fixed costs / Contribution margin in units = $630,000 / $48 = 13,125 units

Break-even point in dollar sales = Selling price * Break-even point in units = $80 * 13,125 = $1,050,000

(c) What dollar amount of sales would be necessary to achieve an income of $120,000?

To calculate this, we first calculate the contribution margin ratio as follows:

Contribution margin ratio = Contribution margin in units / Selling price = $48 / $80 = 0.60

Therefore, we have:

Dollar amount of sales to achieve $120,000 income = (Targeted income + Total Fixed costs) / Contribution margin ratio = ($120,000 + $630,000) / 0.60 = $1,250,000.

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