Question

1. Martin Company's projected profit for the coming year is as follows:

	Total	Per Unit
Sales	$300,000	$30
Total Variable Cost	200,000	20
Contribution Margin	$100,000	$10
Total Fixed Cost	80,000
Operating Income	$20,000

1. Compute the variable cost ratio (round to 4 decimal places).
2. Compute the contribution margin ratio (round to 4 decimal places).
3. Compute the break-even point in units.
4. Compute the break-even point in sales dollars.
5. How many units must be sold to earn a profit of $50,000?
6. For the projected level of sales, compute the margin of safety in units
7. For the projected level of sales, compute the margin of safety in sales dollars.

Answer 1

1) Variable cost ratio = 20/30 = 66.6667%

2) Contribution margin ratio = 10/30 = 33.3333%

3) Break even unit = Fixed cost/Contribution margin per unit = 80000/10 = 8000 Units

4) Break even sales = 8000*30 = $240000

5) Required unit = (80000+50000)/10 = 13000 Units

6) Margin of safety in units = 10000-8000 = 2000 Units

7) Margin of safety in dollars = 2000*30 = $60000