5. Below is an income statement for Jean Simmons Company:Sales$300,000 Variable costs(150,000)Contribution margin$150,000 Fixed costs(100,000)Profit before...
5. Below is an income statement for Jean Simmons Company:Sales$300,000 Variable costs(150,000)Contribution margin$150,000 Fixed costs(100,000)Profit before taxes$ 50,000 1) What was the company's margin of safety in dollars?2) If the unit sales price for Jean Simmons’s sole product was $10, how many units would it have needed to sell to produce a profit of $40,000?
Homework Answers
Answer :
1) Margin of safety = $1,00,000
3) units to be sold = 28,000 units
Explanation :
1) Margin of safety = sales - Break even sales
Break even sales = (fixed cost ÷ contribution) × sales
= (1,00,000 ÷ 1,50,000) × 3,00,000
= 2,00,000
Therefore ,
Margin of safety = 3,00,000 - 2,00,000 = $1,00,000
2) units required to be sold to achieve target profit :
= (Fixed cost+ target profit) ÷ unit contribution margin
= (1,00,000 + 40,000) ÷ (10 - 1,50,000/30,000 units)
= 1,40,000 ÷ 5
= 28,000 units
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5. Below is an income statement for Jean Simmons
Company:Sales$300,000 Variable costs(150,000)Contribution
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