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1) Mauro Products has a single product, a woven basket whose selling price is $54, and variable cost is $45 per unit
1) Mauro Products has a single product, a woven basket whose selling price is $54, and variable cost is $45 per unit. The company's monthly fixed expenses are $26,550.
Required: 1. Compute the company's break-even point in unit sales using the equation method.
2. Compute the company's break-even point in sales dollars using the equation method and the CM ratio.
3. Compute the company's break-even point in unit sales using the contribution margin method.
4. Compute the company's break-even point in sales dollars using the contribution margin method and the CM ratio.
2. Karlik Enterprises has a single product, whose selling price is $24, and variable cost is $18 per unit. The company's monthly fixed expenses are $24,000.
Required: 1. Prepare CVP graph for the company up to a sales level of 8,000 units.
2. Estimate the company's break-even point in unit sales using your CVP graph
3.Molander Corporation sells a sun umbrella used at resort hotels. Data concerning the next month's budget are given below:
Selling price $48per unit
Variable expense $28 per unit
Fixed expense $30,000 per month
Unit sales 2,000units per month
Required:
1. Compute the company's margin of safety.
2. Compute the company's margin of safety as a percentage of its sales.
Expert Solution
| Answer 1) |
| 1) |
| Price * Units = ( Variable Cost * Units ) + Fixed Cost + Profit |
| Let Unit = X |
| At Break Even, Profit = 0 |
| PX = Vx + Fixed Cost |
| X = (Fixed Cost) / (selling price (-) variable expense ) |
| = $26,550 / ( $54 (-) $45) |
| = $26,550 / $9 |
| = 2,950 Units |
| Break Even point in Unit Sales = 2,950 Units |
| 2) |
| Break Even point in Sales dollars |
| = Break Even point in Unit Sales * selling price |
| = 2,950 units * $54 |
| = $159,300 |
| Break Even point in Sales dollars = $159,300 |
| 3) |
| Contribution Margin Per unit |
| = selling price (-) variable expense |
| = $54 - $45 |
| = $9 |
| Break Even Point in Unit Sales |
| = Fixed Cost / Contribution Margin Per unit |
| = $26,550 / $9 |
| = 2,950 Units |
| Break Even point in Unit Sales = 2,950 Units |
| 4) |
| Contribution Margin Per unit |
| = selling price (-) variable expense |
| = $54 - $45 |
| = $9 |
| Contribution Margin ratio |
| = Contribution Margin Per unit / Selling Price |
| = $9 / $54 |
| = 0.1667 or 16.67% |
| Break Even Point in Unit Sales |
| = Fixed Cost / Contribution Margin ratio |
| = $26,550 / 16.67% |
| = $159,300 |
| Break Even point in Sales dollars = $159,300 |
Answer 2)
| Number of Unit | Selling Price | Variable Cost | Fixed Costs | Total Revenues | Total Variable | Total Costs | Profits |
| per Unit | per Unit | Costs | |||||
| (a) | (b) | © | (d) | (e=a*b) | (f=a*c) | (g=d+f) | (e-g) |
| 0 | $24 | $18 | $24,000 | $0 | $0 | $24,000 | ($24,000) |
| 1000 | $24 | $18 | $24,000 | $24,000 | $18,000 | $42,000 | ($18,000) |
| 2000 | $24 | $18 | $24,000 | $48,000 | $36,000 | $60,000 | ($12,000) |
| 3000 | $24 | $18 | $24,000 | $72,000 | $54,000 | $78,000 | ($6,000) |
| 4000 | $24 | $18 | $24,000 | $96,000 | $72,000 | $96,000 | $0 |
| 5000 | $24 | $18 | $24,000 | $120,000 | $90,000 | $114,000 | $6,000 |
| 6000 | $24 | $18 | $24,000 | $144,000 | $108,000 | $132,000 | $12,000 |
| 7000 | $24 | $18 | $24,000 | $168,000 | $126,000 | $150,000 | $18,000 |
| 8000 | $24 | $18 | $24,000 | $192,000 | $144,000 | $168,000 | $24,000 |
Answer 3)
|
Margin of Safety = ( (Current Sales Level - Breakeven point) / Current Sales Level ) * 100 |
|
Current Sale level = 2000 units |
|
Breakeven Sale = Fixed Cost / (Selling price - variable cost) = 30000 / (48-28) |
|
Breakeven Sale = 1500 units |
|
1) Margin of Safety in units = Current Sales Level - Breakeven Sales = 2000 - 1500 |
|
Margin of Safety in units = 500 units |
|
Margin of Safety in dollars = Current Sales - Breakeven Sales = (2000*48) - (1500*48) |
|
Margin of Safety in dollar = $24,000 |
|
2) Margin of Safety as % of sales |
|
Margin of Safety = ( (Current Sales Level - Breakeven point) / Current Sales Level ) * 100 |
|
Margin of Safety = ( (2000 - 1500) / 2000 ) * 100 |
|
Margin of Safety = 25% |
|
|
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