Question

c) Hanna's income statement is as follows: Sales (10,000 units) Less variable costs Contribution margin Less fixed costs Net income $175,000 - 68,000 $107.000 - 36.000 $ 71.000 If sales decrease by $35,000, profits will (Points 2.0): d) Hanna's income statement is as follows: Sales (10,000 units) Less variable costs Contribution margin Less fixed costs Net income $117,000 - 68,000 $49,000 - 36.000 $ 13,000 What is the break-even point in units and in sales dollars? (Points 1.0): e) Using the data from e), what is the margin of safety in units and sales dollars (Points 1.0):

Answer 1

c)The profit is calculated as follows:

	$	$
Sales (10,000 units)	($175,000 - $35,000)	140,000
Less variable costs		- 68,000
Contribution margin		72,000
Less fixed costs		-36,000
Net income		$36,000

d) The break even point in units and dollar is calculated as follows:

Break even point in units = Fixed Cost / Contribution Per Unit

                                    = $36,000/ ($49,000 / 10,000 Units)

                                    = $36,000 / $4.9 Per Unit

                                    = 7,347 Units

Break even point in dollar = Break even point in units * Sale Price Per Unit

                                     = 7,347 Units * ($117,000/ 10,000 Units)

                                     = 7,347 Units * $11.7 Per Unit

                                      = $85,960

e) The margin of safety in units and dollar is calculated as follows:

Note: I took the data from (d) and not from (e) because there is no data in option (e)

Margin of safety in units = Actual Sale in units - Break even point in units

                                   =10,000 Units - 7,347 Units

                                   = 2,653 Units

Margin of safety in dollars = Actual Sale in dollars - Break even point in dollars

                                      = $117,000 - $85,960

                                      = $31,040