Homework Answers
Total manufacturing cost = $3,600,000 - $400,000 = $3,200,000
Fixed manufacturing cost = 3,200,000 X 30% = $960,000
Variable manufacturing cost = $3,200,000 - $960,000 = $2,240,000
Total selling and administrative cost = $400,000 - $150,000 = $250,000
Variable selling and administrative = $3,600,000 X 5% = $180,000
Fixed selling and administrative = $250,000 - $180,000 = $70,000
Total fixed cost = $960,000 + $70,000 = $1,030,000
Total variable cost = $2,240,000 + $180,000 = $2,420,000
Contribution margin ratio = ($3,600,000 - $2,420,000) / $3,600,000 = 32.8%
Breakeven sales = $1,030,000 / 32.8% = $3,142,373
Margin of safety = $3,600,000 - $3,142,373 = $457,627
Option E.
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