Break-Even Units and Sales Revenue: Margin of Safety Dupli-Pro Copy Shop provides photocopying service. Next year,...

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Break-Even Units and Sales Revenue: Margin of Safety Dupli-Pro Copy Shop provides photocopying service. Next year,...

Break-Even Units and Sales Revenue: Margin of Safety

Dupli-Pro Copy Shop provides photocopying service. Next year, Dupli-Pro estimates it will copy 2,900,000 pages at a price of $0.08 each in the coming year. Product costs include:

Direct materials	$0.012
Direct labor	$0.004
Variable overhead	$0.002
Total fixed overhead	$119,920

There is no variable selling expense; fixed selling and administrative expenses total $45,000.

Required:

In your computations that involve the contribution margin ratio, do not round the ratio.

1. Calculate the break-even point in units.
units

2. Calculate the break-even point in sales revenue.
$

3. Calculate the margin of safety in units for the coming year.
units

4. Calculate the margin of safety in sales revenue for the coming year.
$

5. What if the total selling and administrative expenses are reduced to $25,780? Recalculate the following:

a. Break-even point in units		units
b. Break-even point in sales revenue	$
c. Margin of safety in units for the coming year		units
d. Margin of safety in sales revenue for the coming year	$

business accounting

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Answer 1

Answer #1

Answer to Requirement 1:

Selling price per unit = $0.080

Variable cost per unit = Direct materials per unit + Direct labor per unit + Variable overhead per unit
Variable cost per unit = $0.012 + $0.004 + $0.002
Variable cost per unit = $0.018

Fixed costs = Fixed overhead + Fixed selling and administrative expenses
Fixed costs = $119,920 + $45,000
Fixed costs = $164,920

Contribution margin per unit = Selling price per unit - Variable cost per unit
Contribution margin per unit = $0.080 - $0.018
Contribution margin per unit = $0.062

Breakeven point in units = Fixed costs / Contribution margin per unit
Breakeven point in units = $164,920 / $0.062
Breakeven point in units = 2,660,000

Answer to Requirement 2:

Breakeven point in sales revenue = Breakeven point in units * Selling price per unit
Breakeven point in sales revenue = 2,660,000 * $0.080
Breakeven point in sales revenue = $212,800

Answer to Requirement 3:

Margin of safety in units = Actual sales in units - Breakeven point in units
Margin of safety in units = 2,900,000 - 2,660,000
Margin of safety in units = 240,000

Answer to Requirement 4:

Margin of safety in sales revenue = Margin of safety in units * Selling price per unit
Margin of safety in sales revenue = 240,000 * $0.080
Margin of safety in sales revenue = $19,200

Answer to Requirement 5:

Fixed costs = Fixed overhead + Fixed selling and administrative expenses
Fixed costs = $119,920 + $25,780
Fixed costs = $145,700

Breakeven point in units = Fixed costs / Contribution margin per unit
Breakeven point in units = $145,700 / $0.062
Breakeven point in units = 2,350,000

Breakeven point in sales revenue = Breakeven point in units * Selling price per unit
Breakeven point in sales revenue = 2,350,000 * $0.080
Breakeven point in sales revenue = $188,000

Margin of safety in units = Actual sales in units - Breakeven point in units
Margin of safety in units = 2,900,000 - 2,350,000
Margin of safety in units = 550,000

Margin of safety in sales revenue = Margin of safety in units * Selling price per unit
Margin of safety in sales revenue = 550,000 * $0.080
Margin of safety in sales revenue = $44,000

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Answer 2

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Break-Even Units and Sales Revenue: Margin of Safety Dupli-Pro Copy Shop provides photocopying service. Next year,...

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