Problem 1:

The Peace Company has the following functional (traditional) income statement for the priormonth.


($50 * 100,000 units)


Cost of goods sold

Direct materials


Direct labor


Variable factory overhead


Fixed factory overhead



Gross profit


Selling and administrative expense






Operating income


There were no beginning and ending inventories.


  1. Calculate the contribution margin per unit.
  2. Calculate the contribution margin ratio.
  3. What is the break-even point in units?
  4. What is the amount of sales in dollars needed to obtain a before-tax profit of $40,000?

Problem 2:

Suzy Manufacturing has estimated monthly sales of 18,000 units for $48 per unit. Variable costs include manufacturing costs of $27 and distribution costs of $9 per unit. Fixed costs are $60,000 per month.


Determine each of the following values.

  1. Unit contribution margin
  2. Monthly break-even unit sales volume
  3. Before-tax monthly profit
  4. Monthly margin of safety in units