Question

1.margin and Break-Even

Cost Step out the contribution margin and break-even costs for a unique company. Be as realistic as possible and think of reasonable materials costs, unit selling price, variable costs, and fixed costs for the hypothetical business. Describe the company’s projected sales and calculate a margin of safety that is 20%. Finally, calculate how much of the company’s product would need to be sold to make a $10,000 profit in one month.

Answer 1

Let us consider a hypothetical business that has a unit selling price of $ 75, variable cost of $ 30 , material cost of $ 10 and fixed costs of $ 1500.

Using the data, we have to calculate the break-even sales of the hypothetical business/

Break - even sales = Fixed costs Contribution margin vinx Unit selling price

Contribution margin = Selling price - variable cost - material cost

Contribution margin = $ 75 - $ 30 - $ 10 = $ 35

Break - even sales = $1500 cocX $75

For a margin of safety that is 20%, the company's projected sales is calculated as follows:-

Break-even sales = $ 3,214.3

A margin of safety represents how much sales can decline before loss sets in.

Expected sales - break even sales Margin of safety = ? expected sales

0.20 = Ex Expected sales - $3214.3 expected sales

Expected sales = $ 16,071.5

To make a profit of $ 10,000, the number of units to be sold is calculated as follows

Revenue = Price $\times$ quantity

Costs = Fixed cost + variable costs

Profit = Revenue - [ Variable costs + Material costs + fixed costs ]

$ 10,000 = $ 75 $\times$ Q - [ $ 30 Q + $ 10 Q + $ 1500 ]

$ 10,000 = $ 75 Q - $ 40Q - $ 1500

Q = 328.6 units $\approx$ 329 units