Question

Bando Corp. sells a single part for a price of $88 per unit. The variable costs of the part are $47 per unit and monthly fixed costs are $274,700.

Required:

a. What is the break-even level of monthly sales for Bando?

b. The cost analyst tells you that based on the price and cost information of the part and the marketing department's sales projection for next month, the margin of safety percentage is 20 percent. How many units does marketing expect to sell next month?

Required A

What is the break-even level of monthly sales for Bando?

	Break-even level    parts

Required B

The cost analyst tells you that based on the price and cost information of the part and the marketing department's sales projection for next month, the margin of safety percentage is 20 percent. How many units does marketing expect to sell next month?

	Number of units to be sold

Answer 1

Solution:

1. Calculation of Break-Even level of Sales for Bando

     Break-Even Level             = Fixed Cost / Contribution per part

                                          =   $ 274,700 / $ 41

                                          =   6,700 parts

Note: Contribution per part    =   (Selling Price per part – Variable cost per part)

                                          = ($ 88 – $ 47)

                                          =   $ 41

2. Calculation of No. of units to be sold in next month

    Margin of Safety + Break-Even Level =   100% (Actual units Sold)

                          Break-Even Level               =   100% – Margin of Safety

                                                                =   100% – 20%

                        Break-Even Level               =    80%

                        Break-Even Level =    6,700 units which is 80% of Actual units Sold

                            Actual unit Sold               =    6,700 / 80%

                                                                  =    (6,700 / 80) * 100

                            Actual unit Sold             =    8,375 units