Question

Do It Review 18-05 Sun and Company makes radios that sell for $50 each. For the coming year, management expects fixed costs to total $125,280 and variable costs to be 540 per unit Compute the break-even point in dollars using the contribution margin (CM) ratio. Break-even point LINK TO TEXT Compute the margin of safety ratio assuming actual sales are $870,000. (Round margin of safety ratio to 2 decimal places, e.g. 10.50) Margin of safety Compute the sales dollars required to earn net income of $234,720 Required sales Click if you would like to Show Work for this question: Open Show. Work

Answer 1

Ans. 1	Contribution margin ratio   =   (Selling price - Variable cost) / Selling price * 100
	($50 - $40) / $50 * 100
	20.00%
	Break even point in dollar sales =   Fixed cost / Contribution margin ratio
	$125,280 / 20%
	$626,400
Ans. 2	Margin of safety in dollars = Actual sales in dollars - Break even sales in dollars
	$870,000 - $626,400
	$243,600
	Margin of safety percentage = Margin of safety / Actual sales * 100
	$243,600 / $870,000 * 100
	28.00%
Ans. 3	Required sales   =    (Fixed cost + Target profit) / Contribution margin ratio
	($125,280 + $234,720) / 20%
	$360,000 / 20%
	$1,800,000