Exercise 6-2

In the month of June, Jose Hebert's Beauty Salon gave3,700haircuts, shampoos, and permanents at an average price of $30. During the month, fixed costs were $16,800and variable costs were 75% of sales.

Determine the contribution margin in dollars, per unit and as a ratio.(Round contribution margin per unit and contribution margin ratio to 2 decimal places, e.g. 5.25 & 10.50.)

Contribution margin

$

Contribution margin per unit

$

Contribution margin ratio

%

Using the contribution margin technique, compute the break-even point in dollars and in units.(Round answers to 0 decimal places, e.g. 1,225.)

Break-even point

$

Break-even point

units

Compute the margin of safety in dollars and as a ratio.(Round answers to 0 decimal places, e.g. 1,225.)

Margin of safety

$

Margin of safety ratio

%

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Exercise 6-4

Comfi Airways, Inc., a small two-plane passenger airline, has asked for your assistance in some basic analysis of its operations. Both planes seat 10 passengers each, and they fly commuters from Comfi's base airport to the major city in the state, Metropolis. Each month, 40 round-trip flights are made. Shown below is a recent month's activity in the form of a cost-volume-profit income statement.

Fare revenues (400 passenger flights) $64,000

Variable costs

Fuel $25,200

Snacks and drinks 800

Landing fees 1,800

Supplies and forms 1,000 28,800

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Contribution margin 35,200 Fixed costs

Depreciation 3,100

Salaries 12,940

Advertising 300

Airport hanger fees 1,700 18,040

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Net income $17,160

Calculate the break-even point in dollars.

Break-even point $

Calculate the break-even point in number of passenger flights.

Break-even point flights

Without calculations, determine the contribution margin at the break-even point.

Break-even point $

If ticket prices were decreased by 10%, passenger flights would increase by 25%. However, total variable costs would increase by the same percentage as passenger flights.

(1)How much would net income be impacted by this change?

Net income increase or decrease to $

(2)Should the ticket price decrease be adopted?

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Exercise 6-11

Mars Company manufactures and sells three products. Relevant per unit data concerning each product are given below.

Product

A B C

Selling price $8 $12 $16

Variable costs and expenses $5 $10 $13 Machine hours to produce 2 1 2

Compute the contribution margin per unit of limited resource (machine hours) for each product.(Round contribution margin per unit to 2 decimal places, e.g. 1.50.)

Contribution margin per unit of limited resource

Product A

Product B

Product C

Assuming3,000additional machine hours are available, which product should be manufactured

Product A

Product B

Product C

What is the total contribution margin if the hours are (1) divided equally amoung the products and (2) if they are allocated entirely to the product identified above.

Total contribution margin

(1)Divided equally amoung the products$

(2)Allocated entirely to the product identified above