Presto Company makes radios that sell for $28 each. For the coming year, management expects fixed...
Presto Company makes radios that sell for $28 each. For the
coming year, management expects fixed costs to total $278,880 and
variable costs to be $16.80 per unit.
(a) Compute the break-even point in dollars using
the contribution margin (CM) ratio.
| Break-even point |
$ |
(b) Compute the margin of safety ratio assuming
actual sales are $944,715. (Round margin of safety
ratio to 2 decimal places, e.g. 10.50%.)
| Margin of safety |
|
% |
(c) Compute the sales dollars required to earn net
income of $85,120.
| Required sales |
$ |
Homework Answers
a)the break-even point in dollars using the contribution margin:
Breakeven points = fixed cost/(selling price per unit-variable cost per unit)*selling price per unit
=(278880/(28-16.80))*28
=$697200
------------------------
b. margin of safety ratio assuming actual sales are $944,715.
MOS ratio = (Budgeted Sales ? Break-even Sales)/Budgeted Sales
=(944715-697200)/944715
=0.26
------------------------------
c. sales dollars required to earn net income of $85,120:
Let the number of units required be x
=>(x*28)-(x*16.8)-278880 = 85120
=> x= (85120+278880)/11.2
=> x = 32500 units
Sales required = 32500*28
=$910000
Answer:-
| sales price (a) | $ 28 |
| variable price (b) | $ 16.8 |
| contribution (a-b) | $ 11.2 |
| fixed expenses | $ 2,78,880 |
A) break even point = fixed expenses / (selling price - variable price)
Break even point = 2,78,880 / (28 - 16.8)
break even point = $ 24,900
Answer (B) :-
margin of safety = actual sales - break even sales
actual sales = $ 9,44,715 (given in ques)
break even sale = $ 24,900 (compuate from answer A)
margin of safety = 9,44,715 - 24,900
= $ 9,19,815
Answe (C) :-
net income = $ 85,120
calculation of sales volume to earn desried profit =
sales in $ = (fixed expenses + profit) * selling price / selling price - variable cost
= (278880 + 85120) * 28 / (28 - 16.8)
= 364000 * 20 / 11.2
sales in $ = 9,10,000
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