please be as clear and as simple as possible. I am trying to understand it. show me the steps, not only the answers. thank you in advance.
a) Sales = $2,500,000
(-) COGS (Direct material + direct labour + Variable manufacturing overheads)
= $1,080,000
(-) Variable selling expenses
= $80,000
(-) variable administrative expenses
= $40,000
=> Contribution margin = $1,300,000
(-) Fixed expenses = Fixed manf. OH + Fixed selling + Fixed administrative OHs = $780,000
=> Net Income = $520,000
b) Break - even point
In units
= Fixed costs / contribution per unit
= 780,000 / $2.6 = 300,000 units
Notes = No. of units = Sales / selling price = 2,500,000 / 0.5* = 5,000,000 units
Contribution per unit = 1,300,000 / 5,000,000 = $2.6
*(50 cents = 0.5 dollar)
In Dollars
Break-even point = Fixed cost / Profit-volume Ratio
= 780,000 / 52% = $1,500,000
Notes = Profit-volume Ratio = Contribution / Sales value * 100 = 1,300,000 / 2,500,000 * 100 = 52%
c) Contribution margin ratio = Profit-volume ratio = 52%
Margin of Safety ratio = (Total sales - break even point) / Total Sales *100 = (2,500,000-1,500,000)/ 2,500,000 *100 = 40%
d) Desired sales = (Fixed costs + Desired net income) / Contribution margin ratio
= (780,000 + 624,000) / 52% = $2,700,000
**In case something is not understandable or not completely clear, you can always comment below.
please be as clear and as simple as possible. I am trying to understand it. show...
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