Question

1. CVP Analysis; Break-even point, margin of safety: Davies’ Violins, Ltd, produces and sells a single product, violins, whose selling price is $325.00 per unit and whose variable cost is $98.00 per unit. The company's fixed expense is $47,300 per month. The current volume of sales is 350 violins per month.

1. Determine the monthly total contribution margin at the current volume of sales.
2. Determine the monthly net income (loss) at the current volume of sales.
3. Determine the monthly break-even point:

1. In units (round your answer up to the nearest whole unit)
2. In sales dollars (round your answer to the nearest cent (i.e. 2 decimal places)

4. What is the company’s margin of safety:
   1. In units
   2. In sales dollars

Answer 1

Total Contribution margin = (Sales price - Variable costs) * units sold = (325-98)*350 = 79,450
Net income = Total Contribution margin - Fixed costs = 79,450 - 47,300 = 32,150
Break even point In units = Fixed cost /Contribution margin per unit = 47,300/(325-98) = 208 units In sales dollars = Fixed cost/Contribution margin ratio Contribution margin ratio = 227/325 = 69.85% = 47,300/69.85% = 67,716.54
Margin of Safety In units = Sales - Breakeven units = 350 - 208 = 142 units In sales dollars = 142*325 = 46,150