1 answer

IHG Company produces widgets. The widgets are sold for $2.00 per unit to wholesalers Unit variable...

Question:

IHG Company produces widgets. The widgets are sold for $2.00 per unit to wholesalers Unit variable cost are 60 % . For the ye

IHG Company produces widgets. The widgets are sold for $2.00 per unit to wholesalers Unit variable cost are 60 % . For the year 2019, management estimates the following revenues and costs Selling expenses Selling expenses SGA expenses V SGA expenses- fix Sales Direct materials 70,000 75,000 30,000 1.100.000 530,000 460,000 Direct labor Manufacturing overhead- variable Manufacturing overhead -fixed 400,000 80,000 380,000 Instructions: (a) Compute the contribution margin ratio. (Round to the nearest full percent.) Compute the break-even point in dollars (b) Determine the sales dollars required to earn net income of $500,000 (c) (a) Contribution margin ratio Unit contribution margin Unit selling price Contribution margin ratio (b) Break-even point in dollars Fixed costs Contribution margin ratio Break-even point in dollars (c) Sales dollars required to earn target net income Fixed costs Target income Total fixed cost target income Contribution margin ratio Sales dollars required

Answers

a) Contribution margin ratio

Unit contribution margin = 2*40% = 0.80

Unit Selling price = 2

Contribution margin ratio = 0.80/2 = 40%

b) Break even Sales dollars

Fixed cost = 535000

Contribution margin ratio = 40%

Break even Sales = 535000/.40 = $1337500

c) Sales required

Fixed cost = 535000

target income = 500000

Total Fixed cost+Target income = 1035000

Contribution margin ratio = 40%

Sales dollars required = 1035000/.40 = 2587500

.

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