Warm Hands, a small company based in Prince Edward Island, manufactures and sells two types of...

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Warm Hands, a small company based in Prince Edward Island, manufactures and sells two types of lightweight gloves for runners c. Compute the break-even point in units for the company as a whole and the margin of safety in both units (pairs of gloves)

business accounting

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Answer 1

Answer #1

Contribution format Income Statement
	Warm		Cozy		Total
	Amount	%	Amount	%	Amount	%
Sales	13500	100.00%	6750	100.00%	20250	100.00%
Variable Expenses	3375	25.00%	3375	50.00%	6750	33.33%
Contribution Margin	10125	75.00%	3375	50.00%	13500	66.67%
Fixed Expenses					3240	16.00%
Net Operating Income					10260	50.67%

Break even point in dollar sales = Fixed costs/Contribution margin ratio
4,860.00
i.e.	$4,860

Margin of safety = Sales - Break even Sales	15,390
in % = Margin of Safety in Dollars/Sales	76.00%

Contribution format Income Statement
	Warm		Cozy		Toasty		Total
	Amount	%	Amount	%	Amount	%	Amount	%
Sales	13500	100.00%	6750	100.00%	13950	100.00%	34200	100.00%
Variable Expenses	3375	25.00%	3375	50.00%	11160	80.00%	17910	52.37%
Contribution Margin	10125	75.00%	3375	50.00%	2790	20.00%	16290	47.63%
Fixed Expenses							3240	9.47%
Net Operating Income							13050	38.16%

Break even point	6,802.21
Margin of safety	27,397.79
in %	80.11%

d.Sales in Units = (Desired Income before tax + fixed costs)/Contribution Margin per unit
=(5250/0.7 + 3240)/3.62
2966.850829	pairs

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Answer 2

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