Question

C. Assung aclul I W M E5.17 (LO 3,4,5), AP Felde Bucket Co., a manufacturer of rain barrels, had the following data for 2019: Determine contribut break-even point in a margin of safety Sales Sales price Variable costs Fixed costs 2,500 units $40 per unit $24 per unit $19,500 Instructions a. What is the contribution margin ratio? b. What is the break-even point in dollars? c. What is the margin of safety in dollars and as a ratio? d. If the company wishes to increase its total dollar contribution margin by 30% in 2020, by how much will it need to increase its sales if all other factors remain constant? (CGA adapted)

Answer 1

a) Contribution margin ratio = (40-24)/40 = 40%

b) Break even Sales = Fixed cost/Contribution margin ratio = 19500/.40 = $48750

c) Margin of safety in dollars = (2500*40-48750) = 51250

Margin of safety (%) = 51250/100000 = 51.25%

d) Present contribution margin = 16*2500 = 40000

Increase = 40000*30% = 12000

Increase in Sales = 12000*100/40 = $30000