Question

Saved A manufacturer sold 6,960 units of its product at the price of $40 last year. The variable cost petunt was $24 There operating leverage was 4. What was the margin of safety (in $) for this company last year? (All answers are whole numbers - unless specified otherwise. You should NOT include the Sra.com 1000 for one thousand. Negative numbers should be added with a minus sign, eg 1000 for deres Margin of Safety = $ 53:36

Answer 1

Req 1.
Unit contribution= 40-24 = 16
Contribution margin ratio = 16/40 = 40%
Total Contribution = 6960 units @16 = $111,360
Degree of Operating leverage = 4
Degree of Operating leverage = Contribution / Net Income
4 = 111,360 / Net Income
Net Income = $ 27,840
Margin of Safety = Net Income / Contribution margin ratio
	27,840 /40% = $69,600
Answer is $ 69,600
Req 2.
Total sales:
Cost of goods available for sale		730
Less: Ending Finished goods inventory	-56
Cost of goods sold			674
Add: Selling and admin expense		261
Add: Net Operating income		17
Total sales:				952
Answer is $ 952.
Req 3.
Beginning RM inventory	34000
Add: Purchases		105000
Total Cost of Rm available	139000
Less: Ending RM inventory	37500
Direct material used			101500
Direct Labour used			75,000
Overheads applied (75000/12 *16)	1,00,000
Total Manufacturing cost		276500
Add: Beginning WIP inventory		22,500
Total cost of WIP			2,99,000
Less: Ending WIP inventory		15,000
Cost of goods manufactured		2,84,000
Add: Beginning Inventory of FG		67,500
Total cost of goods available for sale	3,51,500
Less: Ending inventory of FG		88,000
Cost of goods sold			2,63,500
Answer is $ 263,500