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Exercise 6-2 (Video) In the month of June, Jose Hebert’s Beauty Salon gave 4,125 haircuts, shampoos, and permanents at an average price of $40
Exercise 6-2 (Video)
In the month of June, Jose Hebert’s Beauty Salon gave 4,125 haircuts, shampoos, and permanents at an average price of $40. During the month, fixed costs were $16,500 and variable costs were 75% of sales.
Determine the contribution margin in dollars, per unit and as a ratio. (Round contribution margin and contribution margin per unit to 2 decimal places, e.g. 5.75.)
Using the contribution margin technique, compute the break-even point in dollars and in units.
Compute the margin of safety in dollars and as a ratio.
Expert Solution
Part A
| Contribution margin in dollars: | Sales = 4,125 × $40 = | $165,000.00 | ||
| Variable costs = $165,000 × 0.75 = | 123,750.00 | |||
| Contribution margin | $41,250.00 |
| Unit contribution margin: | $40 – $30.00 ($40 × 75%) = $10.00. | |
| Contribution margin ratio: | $10.00 ÷ $40 = 25%. |
[(4,125 x $40) – ($165,000 x 75%) = $41,250.00]
[(Units sold x USP) – (Sales $ x VC as % of sales) = CM]
[$40 – ($40 x 75%) = $10.00]
[USP – (USP x VC as % of sales) = UCM]
($10.00 ÷ $40 = 25%)
(UCM ÷ USP = CM ratio)
Part B
| Break-even sales in dollars: |
$16,500
|
= | $66,000 | |
|
25%
|
||||
| Break-even sales in units: |
$16,500
|
= | 1,650 | |
|
$10.00
|
Part C
| Margin of safety in dollars: | $165,000 – $66,000 = $99,000. | |
| Margin of safety ratio: | $99,000 ÷ $165,000 = 60%. |
($165,000 - $66,000 = $99,000)
(Act. sales $ - BEP in $ = MOS in $)
($99,000 ÷ $165,000 = 60%)
(MOS in $ ÷ Act. sales $ = MOS ratio)
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