Question

Score: 0.15 of 1 pt 6 of 9 (6 complete) W E3-29 (similar to) Suppose Garrison Corp.'s breakeven point is revenues of $1,100,000. Fixed costs are $660,000. Requirements 1. Compute the contribution margin percentage. 2. Compute the selling price if variable costs are $16 per unit. 3. Suppose 95,000 units are sold. Compute the margin of safety in units and dollars. 4. What does this tell you about the risk of Garrison making a loss? What are the most likely reasons for this risk to increase? Requirement 1. Compute the contribution margin percentage. Determine the formula for the contribution margin percentage Contribution margin percentage Fixed costs Breakeven point in revenues (Enter percentage as a whole number.) The contribution margin percentage is

Answer 1

Answer 1.

Breakeven Point in dollar sales = Fixed Costs / Contribution Margin Ratio
$1,100,000 = $660,000 / Contribution Margin Ratio
Contribution Margin Ratio = 60%

Answer 2.

Contribution Margin Ratio = (Selling Price per unit - Variable Cost per unit) / Selling Price per unit
0.60 = (Selling Price per unit - $16.00) / Selling Price per unit
0.60 * Selling Price per unit = Selling Price per unit - $16.00
0.40 * Selling Price per unit = $16.00
Selling Price per unit = $40.00

Answer 3.

Breakeven Point in unit sales = Breakeven Point in dollar sales / Selling Price per unit
Breakeven Point in unit sales = $1,100,000 / $40.00
Breakeven Point in unit sales = 27,500

Sales Revenue = Units Sold * Selling Price per unit
Sales Revenue = 95,000 * $40.00
Sales Revenue = $3,800,000

Margin of Safety in units = Actual Units Sold - Breakeven Point in unit sales
Margin of Safety in units = 95,000 - 27,500
Margin of Safety in units = 67,500

Margin of Safety in dollars = Sales Revenue - Breakeven Point in dollar sales
Margin of Safety in dollars = $3,800,000 - $1,100,000
Margin of Safety in dollars = $2,700,000

Answer 4.

Garrison Corp. will make a loss if their sales fall below 27,500 units. In other word, the company would make a loss if sales decreases by 71.05% (67,500 units / 95,000 units).
The most likely reasons for this risk to increase are weak economy, bad management or greater competition.