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APPLY THE CONCEPTS: Effect of Changes to Sales Price, Variable Costs and Fixed Costs Now consider each of the following scenarios for Logan Industries. Calculate the contribution margin (CM) per unit, rounded to nearest dollar, and the rounded to the nearest whole unit, for each scenario separately. Scenario 1 Scenario 2 Scenario 3 Logan has been experiencing quality problems with a Logan will dispose of a After some extensive market research, Logan has materials supplier. Changing suppliers will improve the machine in the factory. The determined that a sales price increase of $2 per unit quality of the product but will cause direct materials costs depreciation on that equipment will not affect the sales volume and will be effective to increase by $1 per unit. ' is $500 per month. immediately. CM per unit: 35- X CM per unit: 35S CM per unit: 35E _ _ Breakeven units: :l _ _ Breakeven units: :l units Breakeven units: :l units units ll grown\": ............ .. .,.... ll Assume that you are part of the accounting team for Logan Industries. The company currently expects to sell 533 units for total revenue of $16,900 each month. Logan Industries estimates direct materials costs of $3,150, direct labor costs of $4,200, variable overhead costs of $2,100, and variable selling and administrative costs of $1,050. Fixed costs of $4,800 are also expected, which includes fixed overhead and selling and administrative costs. Using this information, complete the contribution margin income statement shown below. Logan Industries Contribution Margin Income Statement Sales Less: Variable costs J Contribution margin J Less: Fixed costs J K'x Operating income Logan Industries is examining cost behavior patterns. Your recommendation is to rst determine the break-even point in units. First, calculate the contribution margin (CM) per unit (rounded to the nearest dollar). $- V Next, complete the formula below to determine the breakeven units. Total xed Costs I Contribution Margin per Unit = Units $/ =unis APPLY THE CONCEPTS: The Profit-Volume Graph A profit-volume graph helps managers to visualize the relationship between profits and units sold. The data for Logan Industries has been used to construct the profit-volume graph below. The purple points ( diamond symbols) plot the profit line. The operating loss is the shaded area bordered by the red points (cross symbols). The operating profit is the area bounded by the green points (triangle symbols). Choose the correct profit-volume graph for Logan Industries A V PROFIT (Dollars) PROFIT (Dollars) 10000 10000 Oper. Profit Area Oper. Profit Area 7500 750 5000 Oper. Loss Area 5000 Oper. Loss Area 2500 2500 Profit Line Profit Line -2500 -2500 50004 -5000 -7500 -7500 -10000 -10000 0 200 400 600 800 1000 0 200 400 600 800 1000 UNITS OF SALES Clear All Help UNITS OF SALES Clear All Help PROFIT (Dollars) PROFIT (Dollars) 1000 10000 Oper. Profit Area Oper. Profit Area 7500 7500 5000 Oper. Loss Area 5000 Oper. Loss Area 2500 2500 Profit Line Profit Line -2500 -2500 -5000 -5000 -7500 -7500 -10000 -10000 007 600 0 200 800 200 400 600 1000 800 1000 UNITS OF SALES Clear All Help UNITS OF SALES Clear All|Help D
