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Stellar, Inc
Stellar, Inc. produces stereo speakers. The selling price per pair of speakers is $1,000. The variable cost of production is $210 and the fixed cost per month is $50,876. For November, the company expects to sell 138 pairs of speakers.
Calculate expected profit.
1) Expected profit$(In dollars) _________
2) Contribution margin ratio _________ (rounded to 2 decimal places)
3)Break-even sales$____________(in dollars)
4)Expected sales$ _____________(in dollars)
5)Margin of safety$_____________(in dollars)
*****please let me know if this needs to be a multiple question all though its from one source of information***
Expert Solution
1) Computation of Expected Profit:
Expected profit = Sales revenue - Variable costs - Fixed costs
= (138 * $1,000) - (138 * $210) - $50,876
= $138,000 - $28,980 - $50,876
= $58,144
2) Computation of Contribution Margin Ratio:
Contribution Margin = Sales price - Variable costs
= $1,000 - $210
= $790 per pair
Contribution Margin Ratio = Contribution Margin/Sales Price
= $790/$1,000
= 0.79 or 79%
3) Computation of Break-even Sales:
Break-even Sales = Fixed Cost / Contribution Margin Ratio
= $50,876/79%
= $64,400
4) Computation of Expected Sales:
Expected Sales = 138*$1,000 = $138,000
5) Computation of Margin of Safety:
Margin of Safety = Total Expected Sales - Break-even Sales
= $138,000 - $64,400
Margin of Safety = $73,600
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