Ans. 1 | Break even point in unit sales = Fixed expenses / Contribution margin per unit | |||
$152,400 / $12 | ||||
12,700 units | ||||
Break even point in dollar sales = Break even in units * Selling price | ||||
12,700 * $40 | ||||
$508,000 | ||||
Ans. 2 | On break even point, company's contribution margin is equal to its fixed | |||
cost because on the break even level of sales the operating income of | ||||
company becomes zero and operating income is the difference between | ||||
contribution margin and fixed cost. | ||||
Contribution margin = $152,400. | ||||
Ans. 3 a | Unit sales for target profit = (Fixed expense + Target profit) / Contribution margin per unit | |||
($152,400 + $52,800) / $12 | ||||
$205,200 / $12 | ||||
17,100 units | ||||
Ans. 4 | Margin of safety in dollars = Actual sales in dollars - Break even sales in dollars | |||
$636,000 - $508,000 | ||||
$128,000 | ||||
Margin of safety percentage = Margin of safety / Sales * 100 | ||||
$128,000 / $636,000 * 100 | ||||
20.13% | ||||
Ans. 5 | Contribution margin ratio = Contribution margin per unit / Selling price per unit * 100 | |||
$12 / $40 * 100 | ||||
30% | ||||
Increase in contribution margin = Increases in sales * Contribution margin ratio | ||||
$61,000 * 30% | ||||
$18,300 | ||||
*Fixed cost does not change by the change in sales so the incremental contribution margin will be | ||||
equal to the increase in net operating income. | ||||
So the expected increase in net operating income would be = $18,300. | ||||
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