Question

Zhao Co. has fixed costs of $366,000. Its single product sells for $177 per unit, and variable costs are $117 per unit. If the company expects sales of 10,000 units, compute its margin of safety in dollars and as a percent of expected sales. 

A recent income statement for BMW reports the following (in € millions). Assume 75 percent of the cost of sales and 75 percent of the selling and administrative costs are variable costs, and the remaining 25 percent of each is fixed. 

Compute the contribution margin in millions). (Enter answers in millions of Euros. Do not round your intermediate calculations. Round your final answer to 2 decimal places.) 

Answer 1

Contribution Margin ratio = (Selling price – variable costs)/Selling price

= (177-117)/177

= 33.8983%

Break even sales = Fixed costs/Contribution Margin ratio

= 366,000/33.8983%

= $1,079,700

Margin of Safety in Dollars = Sales – Break even sales

= 10,000*177 – 1079700

= $690,300

% = Margin of Safety/Total Sales

= 690,300/(10,000*177)

= 39%

Contribution Margin Statement
Sales	92,175.00
Variable costs
Cost of sales	55,532.25
Selling and Admin Expense	6,474.75
Contribution Margin	30,168.00