Question

Break-Even in Units and Sales Dollars, Margin of Safety Drake Company produces a single product. Last year's income statement is as follows: Sales (21,000 units) $1,291,500 Less: Variable costs 877,800 Contribution margin $413,700 Less: Fixed costs 252,200 Operating income $161,500 Required: 1. Compute the break-even point in units and sales revenue. In your computations, round the contribution margin per unit to the nearest cent and round the contribution margin ratio to four decimal places. Round your final answers to the nearest whole unit or dollar. Break-even units units Break-even dollars $ 2. What was the margin of safety in dollars for Drake Company last year? Round your final answer to the nearest whole dollar. $

Answer 1

Calculation of CM per unit, CM ratio, Break even sales, Margin of safety.

Sales units Contribution Margin CM per unit 21000 413700 19.7 = ( 413700 / 21000) Sales value 1291500 Contribution Margin 413700 CM ratio = ( CM * 100 ) / Sales CM Raio = 32.0325 % = ( 413700 * 100 / 1291500) Fixed cost 252200 Break even sales = ( Fixed cost /CM Raio ) Break even sales = 787325 = ( 252200 / 32.0325 %) Margin of safety = Actual sales - Break even sales Marginof safety = 504175 = (1291500 - 787325)