Meyers Corp. has annual revenues of $450,000, an average contribution margin ratio of 35%, and fixed expenses
Question:
Meyers Corp. has annual revenues of $450,000, an average contribution margin ratio of 35%, and fixed expenses of $175,000.
Required:
a. Management is considering adding a new product to the company’s product line. The new item will have $9.75 of variable costs per unit. Calculate the selling price that will be required if this product is not to affect the average contribution margin ratio.
b. If the new product adds an additional $37,800 to Meyers’s fixed expenses, how many units of the new product must be sold at the price calculated in part a to break even on the new product?
c. If 15,000 units of the new product could be sold at a price of $16.00 per unit, and the company’s other business did not change, calculate Meyers’s total operating income and average contribution margin ratio.
d. Describe how the analysis of adding the new product would be complicated if it were to “steal” some volume from existing products.
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Step by Step Answer:
a Per Unit Volume Total Revenue 100 Variable Expense 975 65 Contribution Margin 35 Variable expense ...View the full answer
Accounting What the Numbers Mean
ISBN: 978-0073527062
9th Edition
Authors: David H. Marshall, Wayne W. McManus, Daniel F. Viele,
