Question

Exercise 3.37 Pronghorn manufactures and sells swimsuits for $40.00 each. The estimated income statement for 2017 is as follows: Sales $2,000,000 1,040,000 Contribution margin 960,000 790,000 tax earnings$170,000 Variable costs Fixed costs Pre Compute the contribution margin per swimsuit and the number of swimsuits that must be sold to break even. (Round contribution margin per swimsuit to 2 decimal places, e.g. 15.25 and break even swimsuits to 0 decimal places, e.g. 125.) Contribution margin $ Break even per swimsuit swimsuits LINK TO TEXT LINK TO TEXT What is the margin of safety in the number of swimsuits? Margin of safety swimsuits LINK TO TEXT LINK TO TEXT

Answer 1

a) No. of Units Sold = Sale / Sale per unit

= $2000000 / $40

= 50000

Contribution Margin per swimsuits = Total Contribution / No. of Units Sold

= $960000/50000

= $19.20 per swimsuits

Break Even (In Swimsuits) = Fixed Cost / Contribution Margin Per Swimsuits

= $790000 / $19.20

= 41145.83 or 41146

b) Margin of Safety = Total Unit Sold - Break Even units

= 50000 - 41146

= 8854 Swimsuits

c) Contribution Margin Ratio = (Contribution / Sales)*100

= ($960000 / $2000000)*100

= 48%

Break Even Point = Fixed Cost / Contribution Margin Ratio

= $790000 / 48%

= $1645833

d) Margin of Safety = Sale - Break even point

= $2000000 - $1645833

= $354167

e) Estimated Pretax earning = Current Earing + Estimated Next year Earning

= $170000 + $150000

= $320000

f) Pretax Profit = ($230000 / 70%)*100%

= $328571

Contribution Margin = Pretax Profit + Fixed Cost

= $328571 + $790000

= $1118571

No. of Units Sold = Contribution Margin / Contribution Margin Per Unit

= $1118571 / $19.20

= 58258.91 or 58259 swinsuits