Question

ACC 2302
1. Ex.4-38.Algo Break-Even Units, Contribution Margin Ratio, Margin of Safety Khumbu Company's projected profit for the coming year is as follows: 2. Ex.4-39.Algo Total Per Unit 3. Pr.4-40.Algo Sales $43.00 $2,730,500 1,146,810 Total variable cost 18.06 Contribution margin $ 1,583,690 $ 24.94 Total fixed cost 1,169,746 Operating income $ 413,944 Required: 1. Compute the break-even point in units. If required, round your answer to nearest whole value. units 2. How many units must be sold to earn a profit of $240,000? If required, round your answer to nearest whole value. units 3. Compute the contribution margin ratio. If required, round your answer to nearest whole number. % Using the rounded ratio from above, compute the additional profit that Khumbu would earn if sales were $160,000 more than expected.

Answer 1

Requirement 1:

Breakeven Point = Fixed Costs / Contribution Margin per unit
Breakeven Point = $1,169,746 / $24.94
Breakeven Point = 46,902 units

Requirement 2:

Required Sales = (Fixed Costs + Target Profit) / Contribution Margin per unit
Required Sales = ($1,169,746 + $240,000) / $24.94
Required Sales = $1,409,746 / $24.94
Required Sales = 56,526 units

Requirement 3:

Contribution Margin Ratio = Contribution Margin per unit / Selling Price per unit
Contribution Margin Ratio = $24.94 / $43.00
Contribution Margin Ratio = 58%

Additional Profit = Additional Sales * Contribution Margin Ratio
Additional Profit = $160,000 * 58%
Additional Profit = $92,800

Requirement 4:

Projected Sales in units = Projected Sales in dollars / Selling Price per unit
Projected Sales in units = $2,730,500 / $43.00
Projected Sales in units = 63,500

Margin of Safety = Projected Sales in units - Breakeven Point
Margin of Safety = 63,500 - 46,902
Margin of Safety = 16,598 units