Chapter 7

Contribution margin is the difference between:
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Sapphire sells two products: ordinary laptops and premium laptops. Ordinary laptops are priced at $650 each and premium laptops are priced at $1,110 each. The variable cost per unit is $605 per ordinary laptop and $1,040 per premium laptop. Total fixed cost is $125,000. Sapphire's expected sales mix is four ordinary laptops to one premium laptop. Calculate the break-even point in units for ordinary laptops.
b.2,000 laptops

The four ordinary laptops in the package yield $180 (4 × $45) in contribution margin. The premium laptop in the package yields $70 in contribution margin. Thus, a package of five laptops (four ordinary and one premium) has a total contribution margin of $250.
Break-Even Packages=Total Fixed Cost / Package Contribution Margin=$125,000 / $250=500 packages
Ordinary Laptop Break-Even Units = 500 × 4 = 2,000
Which of the following equations is used to calculate the degree of operating leverage?a.Degree of Operating Leverage = Total Contribution Margin / Operating IncomeAquamarine Company plans to sell 6,000 sewing machines at $75 each in the coming year. Aquamarine has unit variable cost of $60 and total fixed cost of $62,550. Compute the margin of safety for Aquamarine in terms of the number of units.1,830 sewing machines Contribution margin per sewing machine = $75 - $60 = $15Break-Even Units = Total Fixed Cost / Contribution Margin = $62,550 / $15 = 4,170 sewing machines Margin of Safety in Units = Sales - Break-Even Units = 6,000 sewing machines - 4,170 sewing machines = 1,830 sewing machines