5 ABC Co. sells product XYZ at $5.00 per unit. If fixed costs are $200,000 and variable costs are $3.00 per unit, how many units must b Unit contribution = $5.00 - $3.00 = $2.00 Fixed costs + Target income / contribution margin per unit = $200,000+ $40,000/ $2.00 per unit = 120000 units Business Applications of CVP Sales (500 bikes) Less: variable expenses Contribution margin Less: fixed expenses Operating income Total $250,000 $150,000 $100,000 80000 $20,000 Per unit % Sales $500 100% 300 6096 $200 40% 6 Should CyclCo spend $12,000 on advertising to increase sales by 10 percent? Sales Less: variable expenses Contribution margin Less: fixed expenses Operating income 500 bikes $250,000 $150,000 $100,000 80000 $20,000 550 bikes $275,000 $165,000 $110,000 92000 $18,000 INCOME DECREASED Z Now, in combination with the advertising, Cyclo is considering a 10 percent price reduction that will increase sales by 25 percent. 450 500 bikes 625 Sales $250,000 $281,250 Less: variable expenses $150,000 $187,500 Contribution margin $100,000 $93,750 Less: fixed expenses 80000 92000 Operating income $20,000 $1,750 INCOME DECREASED 8 Now, in combination with advertising and a price cut, CyclCo will replace $50,000 in sales salaries with a $25 per bike commission, it 450 500 bikes 750 Sales $250,000 $337,500 Less: variable expenses $150,000 $243,750 300+25 Contribution margin $100,000 $93,750 Less: fixed expenses 80000 42000 Operating income $20,000 $51,750 5 ABC Co. sells product XYZ at $5.00 per unit. If fixed costs are $200,000 and variable costs are $3.00 per unit, how many units must b Unit contribution = $5.00 - $3.00 = $2.00 Fixed costs + Target income / contribution margin per unit = $200,000+ $40,000/ $2.00 per unit = 120000 units Business Applications of CVP Sales (500 bikes) Less: variable expenses Contribution margin Less: fixed expenses Operating income Total $250,000 $150,000 $100,000 80000 $20,000 Per unit % Sales $500 100% 300 6096 $200 40% 6 Should CyclCo spend $12,000 on advertising to increase sales by 10 percent? Sales Less: variable expenses Contribution margin Less: fixed expenses Operating income 500 bikes $250,000 $150,000 $100,000 80000 $20,000 550 bikes $275,000 $165,000 $110,000 92000 $18,000 INCOME DECREASED Z Now, in combination with the advertising, Cyclo is considering a 10 percent price reduction that will increase sales by 25 percent. 450 500 bikes 625 Sales $250,000 $281,250 Less: variable expenses $150,000 $187,500 Contribution margin $100,000 $93,750 Less: fixed expenses 80000 92000 Operating income $20,000 $1,750 INCOME DECREASED 8 Now, in combination with advertising and a price cut, CyclCo will replace $50,000 in sales salaries with a $25 per bike commission, it 450 500 bikes 750 Sales $250,000 $337,500 Less: variable expenses $150,000 $243,750 300+25 Contribution margin $100,000 $93,750 Less: fixed expenses 80000 42000 Operating income $20,000 $51,750