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Homework answers / question archive / Julia Child Company sells baby car seats to retailers for an average of $85 each
Julia Child Company sells baby car seats to retailers for an average of $85 each. The variable cost of each car seat is $48 and monthly fixed selling costs total $6,000. Other monthly fixed costs of the company total $7,000.
Required:
7. What is the breakeven point in number of car seats?
8. What is the margin of safety, assuming sales total $32,000?
9. What is the breakeven level in car seats, assuming variable costs increase by 20%?
10. What is the breakeven level in car seats, assuming the selling price goes up by 10%, fixed selling costs decline by 10%, and other fixed costs decline by $1,000?
7.Computation of Break-even Point in Number of Car Seats:
Break-even Point = Fixed Cost/ Contribution Margin per Unit
= ($6,000+$7,000)/($85-$48)
= $13,000/$37
Break-even Point = 351.35 or 351 car seats
8.Computation of Margin of Safety:
Margin of Safety = Actual Sales - Break-even Sales
Here,
Break-even Sales = Fixed Cost / Contribution Margin Ratio
= $13,000/($37/$85)
= $13,000/43.53%
Break-even Sales = $29,864.86
Margin of Safety = $32,000 - $29,864.86 = $2,135.14
9.Computation of Break-even level in Car Seats, assuming variable costs increase by 20%:
Variable Costs = $48*(1+20%) = $57.60
Break-even Point = Fixed Cost/ Contribution Margin per Unit
= ($6,000+$7,000)/($85-$57.60)
= $13,000/$27.40
Break-even Point = 474.45 or 474 car seats
10.Computation of Break-even level in Car Seats, assuming the selling price goes up by 10%, fixed selling costs decline by 10%, and other fixed costs decline by $1,000:
Selling price = $85 *(1+10%) = $93.50
Fixed Costs = $6,000*(1-10%) + ($7,000-$1,000) = $5,400 + $6,000 = $11,400
Break-even Point = $11,400/($93.50-$48)
= $11,400/$45.50
Break-even Point = 250.55 or 251 car seats
