Question

Break.Even Sales and Sales to Realize Income from Operations For the current year ending October 31. Yentling Company expects fixed costs of $592.000, a unit variable cost or unit selling price of $98. a. Compute break-even sales (units). b. Compute the sales (units) required to realize income from operations of $137,600. Margin of Safety a. If Canace Company, with a break-even point at $360,000 of sales, has actual sales of $500,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? Round the percentage to the nearest whole number. b. If the margin of safety for Canace Company was 25%, fixed costs were $1,419,375, and variable costs were 75% of sales, what was the amount of actual sales (dollars)?

Answer 1

Break-even Sales and Sales to realize Income of Operations

(a) Calculation of Break-even Units

Break-even Sales (Units) = Fixed Cost / Contribution per unit

Here,Fixed Cost = $592,00

     Contribution per unit = Sale price per unit - Variable cost per unit = $98 - $66 = $32 per unit

Break-even Sales (Units) = Fixed Cost / Contribution per unit

   = $592,000 / $32

   = 18,500 units

(b) Calculation of Sales Units required to earn profit of $137,600

Required profit = $137,600

= [(Fixed Cost + Required profit) / Contribution per unit

= [($592,000 + $137,600) / $32]

= ($729,600 / $32)

= 22,800 units

Margin of Safety

(a)

1. Margin of Safety (Dollars) = Actual Sales - Break-even Sales

                                     = $500,000 - $360,000

                                     = $140,000

2. Margin of Safety% = (Margin of Safety Sales / Actual Sales) * 100

                            = ($140,000 / $500,000) *100

                            = 28%

(b)

Given that Margin of Safety = 25%

Fixed cost = $1,419,375

Variable costs = 75% of sales

Margin of Safety Sales is 25%, So Break-even Sales is 75%

Variable costs is 75%, So Contribution margin ratio is 25%

Break-even Sales = Fixed Cost / Contribution margin ratio

                          = $1,419,375 / 25%

                          = $5,677,500

Break-even Sales of 75% = $5,677,500

Margin of Safety Sales of 25% = $1,892,500

Margin of Safety Sales = Actual Sales - Break-even Sales

Actual Sales = Break-even Sales + Margin of Safety Sales

   = $5,677,500 + $1,892,500                           

                   = $7,570,000

Actual Sales = $7,570,000