Question

Curvy Confections is considering building a new plant in Europe. It predicts sales at the new plant to be 41,000 units at $9.00und. Below is a listing of estimated expenses: Total Annual of Annual Expense Category Expenses that are Feed Materials $25.000 20% Labor $25.000 20% O A. 10.2% OB. 1142% O c. 71.7% OD. 88.9% Click to select your answer * Previous Next

Answer 1

Solution:

Fixed expenses = ($25,000 * 20%) + ($25,000*20%) + ($45,000*50%) + ($10,000*50%) = $37,500

Variable expenses = ($25,000 + $25,000 + $45,000 + $10,000) - $37,500 + (41000*$9*10%) = $104,400

Sales revenue = $41,000*9 = $369,000

CM ratio = ($369,000 - $104,400) / $369,000 = 71.70732%

Breakeven sales = Fixed expenses / CM ratio = $37,500 /71.70732% = $52,296

Margin of safety percentage = (Current sales - Breakeven sales) / Current sales = ($369,000 - $52,296) / $369,000 = 85.8%

Note: Answers provided in options seems to be incorrect.