Question

The section of Waterways that produces controllers for the company provided the following information Sales for month of February 4,100 Variable manufacturing cost per unit $10.00 Sales price per unit $41.00 Fixed manufacturing overhead cost (per month for controllers) $80,000 Variable selling and administrative expenses per unit $2.30 Fixed selling and administrative expenses (per month for controllers) $13,800 Using this information for the controllers, determine the contribution margin ratio, the degree of operating leverage, the break-even point in dollars, and the margin of safety ratio for Waterways Corporation on this product. Contribution Margin Ratio (Round to decimal places, eg. 25%) 70 % Degree of Operating Leverage (Round to 2 decimal places, eg. 5.25.) Break-even Point in Dollars Margin of Safety Ratio (Round to 1 decimal place, eg.5.2%)

Answer 1

1.) Contribution margin ratio = Contribution margin/sales

= [4,100 x (41 - 10 - 2.30)]/(4,100 x 41)

= 117,670/168,100

= 70%

2.) Degree of operating leverage = contribution margin/operating income

= 117,670/(117,670 - 80,000 - 13,800)

= 117,670/23,870

= 4.93

3.) Breakeven point in dollar = fixed cost/contributed margin ratio

= (80,000 + 13,800)/70%

= $134,000

4.) Margin of safety ratio = (Current sales-breakeven sales)/current sales

= (168,100 - 134,000)/168,100

= 20.29%