Description
Question 1. (30%)
Paulsen Company sells only one product.The regular selling price is $50.Variable costs are 70% of
this selling price, and fixed costs are $7,500 per month.
Management decides to increase the selling price from $50 to $55 per unit.Assume that the cost
of the product and the fixed operating expenses are not changed by this pricing decision.
1Refer to the above data.At the original selling price of $50 per unit, what is the contribution margin ratio?
2Refer to the above data.At the original selling price of $50 per unit, how many units must Paulsen sell to break even?
3Refer to the above data.At the original selling price of $50 per unit, what dollar volume of sales per month is required for Paulsen to earn a monthly operatingincome of $5,000?
4Refer to the above data.At the increased selling price of $55 per unit, what is the contribution margin ratio?
5Refer to the above data.At the increased selling price of $55 per unit, what dollar volume of sales per month is required to break-even?
Question 2. (35%)
What are the benefits and challenges of budgeting?
Question 3. (35%)
What elements would you consider to build a Master Budget and what process would be followed to complete it?
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Explanation & Answer
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COMPUTATION ASSESSMENTS
1
Your name
Instructor’s name
Course
Date of submission
COMPUTATION ASSESSMENTS
2
Question 1
1.
𝐶𝑀 𝑅𝑎𝑡𝑖𝑜 =
𝑡𝑜𝑡𝑎𝑙 𝑠𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 − 𝑐𝑜𝑠𝑡 𝑡𝑜 𝑚𝑎𝑘𝑒 𝑡ℎ𝑒 𝑝𝑟𝑜𝑑𝑢𝑐𝑡
𝑡𝑜𝑡𝑎𝑙 𝑠𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒
=
50 − 50 × 70%
15
=
= 0.3
50
50
Therefore the CM ratio = 0.3
2. Break-even units = fixed costs/ sales price per unit- variable cost per unit
7500
7500
=
= 500
50 − 50 × 70%
15
Therefore Paulsen's sell to break even is 500 units.
3. =
=
𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡+𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑖𝑛𝑐𝑜𝑚𝑒
𝐶𝑀 𝑅𝑎𝑡𝑖𝑜
7500+5000
0.3
=
12,500
0.3
= 41,666.6667
Therefore the dollar volume of sales needed for Paulsen to earn a monthly salary
of $5000 is 41,666.6667.
4. 𝐶𝑀 𝑅𝑎𝑡𝑖𝑜 =
𝑡𝑜𝑡𝑎𝑙 𝑠𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒−𝑐𝑜𝑠𝑡 𝑡𝑜 𝑚𝑎𝑘𝑒 𝑡ℎ𝑒 𝑝𝑟𝑜𝑑𝑢𝑐𝑡
𝑡𝑜𝑡𝑎𝑙 𝑠𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒
COMPUTATION ASSESSMENTS
3
55 − 55 × 70% 16.15
=
= 0.30
55
55
Therefore, the CM Ratio = 0.30
5. Break-even point per unit based on sales dollars= fixed costs/ the contribution
margin ration
=
7500
0.3
= 25, 000
Therefore the dollar volume of sales per month required to break-even $25,000
Question 2
A budget refers to a financial plan that is developed to achieve financial and
operational goals for the business. The...
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