Question

show all your work.

Prestige World Wide had the following cost information for the first half of the year. Month Units Cost January 800 $10,000 February 1,200 $15,000 March 1,800 $22,000 April 1,600 $19,000 May 1,500 $17,500 June 1,000 $11,000 The selling price per unit is $20. Expected sales in July are 1,100 units Required: You will need to answer these questions in order. You will use your answers to solve for the following questions. Answer the following: 1. Using the Hi-Low method, what is the variable cost per unit? 2. Using the Hi-Low method, what is the fixed cost? 3. What is the contribution margin for July? 4. What is the operating leverage in July? 5. What is the breakeven point in July? In units and revenue dollars? 6. What is the margin of safety as a percentage in July?

Answer 1

1) Variable cost per unit = Change in Cost/Change in Unit = (22000-10000)/(1800-800) = 12 per unit

2) Fixed cost = 22000-(1800*12) = 400

3) Contribution margin for July = (20-12)*1100 = 8800

4) Net income for July = 8800-400 = 8400

Operating leverage = Contribution margin/Net income = 8800/8400 = 1.05

5) Break even unit = 400/8 = 50 Units

Break even sales = 50*20 = 1000

6) Margin of safety = (1100-50)/1100 = 95.45%