Question

Exercise 5-16 a,c (Video) Oriole Company estimates that variable costs will be 60.00% of sales, and fixed costs will total $600,000. The selling price of the product is $4.

Compute the break-even point in (1) units and (2) dollars. (1) Break-even sales units (2) Break-even sales $ LINK TO TEXT LINK TO TEXT

Assuming actual sales are $2,000,000, compute the margin of safety in (1) dollars and (2) as a ratio. (1) Margin of safety $ (2) Margin of safety ratio % Click if you would like to Show Work for this question: Open Show Work

Answer 1

Contribution Margin per unit = 100% - Variable cost ratio = 100% - 60% = 40% of sales = 40% * 4 = 1.60 Breakeven sales units = Fixed cost/Contribution margin per unit = 600,000/1.60 = 375,000 units Breakeven sales = Fixed cost/Contribution margin ratio = 600,000/40% = 1,500,000

Margin of Safety = Sales - Breakeven sales = 2,000,000 - 1,500,000 = 500,000 Margin of Safety ratio = Margin of Safety/Sales = 500,000/2,000,000 = 25%