Question

Exercise 20-2 In the month of June, Jose Hebert's Beauty Salon gave 3,500 haircuts, shampoos, and permanents at an average price of $ 40. During the month, fixed costs were $ 16,500 and variable costs were 75% of sales. Determine the contribution margin in dollars, per unit and as a ratio. (Round contribution margin per unit and contribution margin ratio to 2 decimal places, e.g. 5.25 & 10.50.) Contribution margin Contribution margin per unit Contribution margin ratio LINK TO TEXT VIDEO: SIMILAR EXERCISE Using the contribution margin technique, compute the break-even point in dollars and in units. (Round answers to o decimal places, e.g. 1,225.) Break-even points Break-even point units LINK TO TEXT VIDEO: SIMILAR EXERCISE Compute the margin of safety in dollars and as a ratio. (Round answers to 0 decimal places, e.g. 1,225.) s Margin of safety Margin of safety ratio

Answer 1

Sales in $ = 3500 * $ 40 = 140000

Variable Cost = Sales * 75% = 140000 * 75% = 105000

Contribution Margin = Sales - Variable Cost = $140000 - $10500

= $35000

Contribution Margin per unit = $35000 / 3500 = $ 10

Contribution Margin ratio = Contribution / Sales = $ 35000 / $140000

= 25%

Break even point (Units) = Fixed  Cost / Contribution per unit

= $16,500 / $10

= 1,650 Units

Break Even Point ($) = Sales price per unit * Brek even Point in Units

= $40 * 1,650 units

= $66,000

Margin of Safety $ = Actual Sales - Break Even Point

= $140000 - $66000

= $74000

Margin of Safety Ratio = (Actual Sales - Break Even Point) / Actual Sales * 100

= ($140000 - $66000) / 140000 * 100

= 52.86 %

= 53%