Homework Answers
Ans:
| 1) Calculation of contribution margin percentage: | ||
| contribution margin percentage= Fixed cost/ Break even point in dollars | ||
| = 630000/1400000= 0.45 | ||
| contribution margin percentage= 45% | ||
| 2) Calculation of Selling price: | ||
| Variable cost ratio= 100- contribution margin percentage | ||
| =100%-45%= 55% | ||
| Variable cost ratio= 55% | ||
| Selling price= Variable cost/ variable cost ratio= 11/0.55 | ||
| Therefore selling price= $20 | ||
| 3) Calculation of margin of safety in dollars: | ||
| Total sales= units* selling price= 90,000units*20= $1800000 | ||
| Margin of safety in dollars= Total sales- Break even sales | ||
| = 1800000-1400000 | ||
| Margin of safety sales in dollars= $400000 | ||
| Calculation margin of safety in units: | ||
| Margin of safety in units= margin of safety sales in dollars/ selling price | ||
| = 400000/ 20= 20000 units | ||
| Margin of safety sales in units= 20000 units | ||
| 4) As break even sales in dollars is $1400000 it is a situation when the company has no profit no | |||
| loss situation but if the sales is reduced from the break even point then it will increase the | |||
| risk of loss. So Garrison should not reduce the sales from the break even point in order to achieve | |||
| profit. | |||
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