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Homework answers / question archive / Ivanhoe Company makes radios that sell for $40 each
Ivanhoe Company makes radios that sell for $40 each. For the coming year, management expects fixed costs to total $153,360 and variable costs to be $28 per unit. Compute the break-even point in dollars using the contribution margin (CM) ratio. Break-even point Compute the margin of safety ratio assuming actual sales are $720,000. (Round margin of safety ratio to 2 decimal places, e.g. 10.50.) Margin of safety % Compute the sales dollars required to earn net income of $242,640. Required sales $ Click if you would like to show Work for this question: Open Show Work
1. Contribution margin % = (40-28)/40 = 30%
Break even point = Fixed costs / Contribution margin %
= 153360/ 30%= 511200
2. Margin of safety = ( 720000-511200)/ 720000 *100 = 29%
3. Required sales = (Fixed cost + Target income) / Contribution margin = (242640+ 153360) / 30% = 1,320,000
