Homework Answers
Requirement 7:
| Selling price per pipe | $12 |
| (Less): Variable cost per pipe | ($8.80) |
| Contribution margin per pipe | $3.20 |
Requirement 8:
Break-even point in dollars = [Fixed cost ÷ Contribution margin per pipe] x Selling price per pipe
= (4,800÷3.20) x $12
= 1,500 x $12
= $18,000
Requirement 9:
Pipes must be sold to earn pre-tax income of 4,000 = [Fixed cost + Pre-tax income]÷Contribution margin
= [4,800+4,000]÷$3.2
=2,750 pipes
Requirement 9:
Current sales = 1,800 x $12 = $21,600
Margin of safety = [(Current sales - Break-even sales)÷Current sales] x 100
= [(21,600-18,000)÷21,600] x 100
=(3,600/21,600) x 100
=16.67%
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