Question

Exercise 19-2 In the month of June, Jose Hebert's Beauty Salon gave 3,800 haircuts, shampoos, and permanents at an average price of $30. During the month, fixed costs were $16,900 and variable costs were 75% of sales. Determine the contribution margin in dollars, per unit and as a ratio. (Round contribution margin per unit and contribution margin ratio to 2 decimal places, e.g 5.25 & 10.50 Contribution margin Contribution margin per unit Contribution margin ratio LINK TO TEXT VIDEO: SIMILAR EXERCISE Using the contribution margin technique, compute the break-even point in dollars and in units. (Round answers to O decimal places, e.g. 1,225.) Break-even point Break-even point units LINK TO TEXT VIDEO: SIMILAR EXERCISE

Answer 1

Answer of Part 1:

Variable cost = 75% * $30
Variable cost per unit = $22.5

Contribution Margin = $7.5 * 3,800
Contribution Margin = $28,500

Contribution Margin per Unit = Sales per unit – Variable cost per unit
Contribution margin per unit = $30 - $22.5
Contribution Margin per unit= $7.5

Contribution Margin Ratio = Contribution Margin per unit / Sales *100
Contribution Margin ratio = $7.5 / $30 *100
Contribution Margin ratio = 25%

Answer of Part 2:

Break Even Point in dollars = Fixed Costs / Contribution Margin ratio
Break Even Point in Dollars = $16,900 / 0.25
Break Even Point in Dollars = $67,600

Break Even Point in units = Fixed Costs / Contribution Margin per Unit
Break Even Point in Units = $16,900 / $7.5
Break Even Point in Units = 2,253 units

Answer of Part 3:

Total Sales = Units Sold * Cost per Unit
Total Sales = 3,800 * $30
Total Sales = $114,000

Break Even Point = $67,600

Margin of Safety in Dollars = Total Sales – Break Even Point
Margin of Safety in Dollars = $114,000 - $67,600
Margin of Safety in Dollars = $46,400

Margin of Safety ratio = margin of Safety / Total Sales *100
Margin of Safety Ratio = $46,400 / $114,000 *100
Margin of Safety Ratio = 41%