Homework Answers
(a) . Break-even point in dollars = Fixed Cost / Contribution margin ratio
Contribution margin ratio = (Selling price per unit – variable cost per unit) / Selling price per unit
= (5,600 - 4,200) / 5,600
= 25%
Therefore, Break-even point in dollars = $ 3,200,000 /25% = $12,800,000
(b) Margin of safety = Actual sales - Break-even sales
= 13,824,000 - 12,800,000
= $ 1,024,000
Margin of safety ratio = (Margin of safety / Actual sales) *100
= ($ 1,024,000 / $13,824,000) *100
= 7.41%
(c) Sales dollars = (Fixed cost + Target Net income) / Contribution margin ratio
=($ 3,200,000 + 4,100,000) / 25%
= $29,200,000
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