Question

Exercise 5-17

Oak Bucket Co., a manufacturer of wood buckets, had the following data for 2013.

Sales		2,700	units
Sales price		$40.00	per unit
Variable costs		$17.60	per unit
Fixed costs		$19,320

What is the contribution margin ratio ________%?

What is the break-even point in dollars $________?

What is the margin of safety dollars and as a ratio?

Margin of safety $_______?

Margin of safety ratio ______%?

If the company wishes to increase its total dollar contribution margin by 44% in 2014, by how much will it need to increase its sales if all other factors remain constant? (Round answer to 0 decimal places, e.g. 2,520.)

Total increases in sales required $___________?

Answer 1

Contribution margin ratio = Contribution per unit  / sales price

Contribution Per unit = Sales price - Variable cost

= $40 - $17.60

= $22.40

Contribution margin ratio = $22.40 / $40.00

= 56%

Break-even point in dollars = Fixed costs / Contribution margin ratio

= $19,320 / 56%

= $34,500

Margin of safety = Actual sales - Break even sales

= (2,700 * $40) - $34,500

= $108,000 - $34,500

= $73,500

Margin of safety ratio = Margin of safety / Actual sales

= $73,500 / $108,000

= 68.05%

If the company wishes to increase its total dollar contribution margin by 44% in 2014, by how much will it need to increase its sales if all other factors remain constant

New contribution = Contribution * 1.44

= $22.40 *1.44

= $32.256

Sales per unit required = $32.256/Contribution margin ratio

= $32.256 / 56%

= $57.6

Increase in selling price = ($57.6 - $40)

= $17.6

Total increase in sales required = $17.6* 2,700 units

= $47,520