Question

Awtis Corporation has a margin of safety percentage of 25% based on its actual sales. The break-even point is $366,000 and the variable expenses are 45% of sales. Given this information, the actual profit is: Multiple Choice Ο Ο 697600 Ο $67100 Ο $18,300 Ο $50,325

Answer 1

Answer to Question 1:

Contribution margin ratio = 1 - Variable expenses ratio
Contribution margin ratio = 1 - 0.45
Contribution margin ratio = 0.55

Breakeven point in dollar = Fixed expenses / Contribution margin ratio
$366,000 = Fixed expenses / 0.55
Fixed expenses = $201,300

Margin of safety percentage = (Actual sales - Breakeven sales in dollar) / Actual sales
0.25 = (Actual sales - $366,000) / Actual sales
0.25 * Actual sales = Actual sales - $366,000
0.75 * Actual sales = $366,000
Actual sales = $488,000

Actual profit = Actual sales * Contribution margin ratio - Fixed expenses
Actual profit = $488,000 * 0.55 - $201,300
Actual profit = $67,100

Answer to Question 2:

Increase in unit sale = 140
Contribution margin per unit = $84.00
Increase in fixed expenses = $7,200

Increase in net operating income = Increase in unit sale * Contribution margin per unit - Increase in fixed expenses
Increase in net operating income = 140 * $84.00 - $7,200
Increase in net operating income = $4,560

Answer to Question 3:

Contribution margin ratio = (Selling price per unit - Variable expenses per unit) / Selling price per unit
Contribution margin ratio = ($190.00 - $60.80) / $190.00
Contribution margin ratio = 0.68

Breakeven point in dollar = Fixed expenses / Contribution margin ratio
Breakeven point in dollar = $394,128 / 0.68
Breakeven point in dollar = $579,600

Answer to Question 4:

Net operating income = Sales * Contribution margin ratio - Fixed expenses
Net operating income = $94,000 * 0.65 - $31,000
Net operating income = $30,100