Contribution Margin Concepts

The following information is taken from the 2017 records of Hendrix's Guitar Center.

FixedVariableTotalSales$1,500,000CostsGoods sold675,000Labor$320,000120,000Supplies4,00010,000Utilities24,00026,000Rent48,0000Advertising12,00049,000Miscellaneous12,00020,000Total costs$420,000$900,000(1,320,000)Net income$ 180,000

Required

(a.) Determine the annual break-even dollar sales volume.

Contribution margin ratio:Answer

Annual break-even dollar sales volumes: $Answer

(b.) Determine the current margin of safety in dollars.

$Answer

(c.) Prepare a cost-volume-profit graph for the guitar shop. Label both axes in dollars with maximum values of $1,000,000. Draw a vertical line on the graph for the current ($750,000) sales level, and label total variable costs, total fixed costs, and total profits at $75,000 sales.

(d.) What is the annual break-even dollar sales volume if management makes a decision that increases fixed costs by $60,000?

$Answer