Managerial Accounting Problem 4-21

Sheri Wernert

BUS 630: Managerial Accounting

Problem 4-21

Professor Meeks

June 12, 2011

Problem 4-21

Given:

|Selling Price |$30.00 |

| | |

|Variable Expenses: | |

| Invoice cost |$13.50 |

| Sales Commission |4.50 |

|Total Variable expenses |$18.00 |

| | |

|Fixed expenses: | |

| Advertising |$30,000 |

| Rent |20,000 |

| Salaries |100,000 |

|Total Fixed Expenses |$150,000 |

|Contribution Margin |Total |Per pair of shoes |

|Selling |$30 |$30 |

|Variable Expenses |18 |18 |

|Contribution Margin |$12 |$12 |

|CM ratio |Total |Per Pair |Percentage |

| | |Of shoes | |

|Selling |$30 |$30 | |

|Variable expenses |18 |18 | |

|Contribution Margin |$12 |$12 |0.40 |

1) Calculate the annual break-even point in dollar sales and in unit sales for Shop 48.

Break-even point in dollars = fixed expenses/cm ratio

= $150,000/0.40

= $375,000

Break-even point in unit sales = fixed expenses/unit cm

= $150,000/$12.00...