Question

Exercise 5-12 In 2019, Ivanhoe Company had a break-even point of $310,000 based on a selling price of $8 per unit and fixed costs of $93,000. In 2020, the selling price and the variable costs per unit did not change, but the break-even point increased to $429,000 Your answer is correct. Compute the variable costs per unit and the contribution margin ratio for 2019. (Round Variable cost per unit to 2 decimal places, e.g. 2.25 and Contribution margin ratio to O decimal places, e.g. 20.) Variable costs per unit Contribution margin ratio LINK TO TEXT LINK TO TEXT x Your answer is incorrect. Try again. Compute the increase in fixed costs for 2020. Increase in fixed cost T 128700

Answer 1

1)

Break even in dollars = Fixed costs/Contribution margin ratio

Fixed costs = Break even in dollars*Contribution margin ratio

Fixed costs = $429,000*30%

Fixed costs = $128,700

Increase in fixed costs = $128,700-$93,000

Increase in fixed costs = $35,700

2)

Break even in dollars = Fixed costs/Contribution margin ratio

Break even in dollars = $17,955/30%

Break even in dollars = $59,850

Sales = 2,850*$60 = $171,000

Margin of safety ($) = Sales - Break even sales

Margin of safety ($) = $171,000 - $59,850

Margin of safety ($) = $111,150

Margin of safety (%) = $111,150/$171,000

Margin of safety (%) = 65%

Total increase in sales required = $171,000*30%

Total increase in sales required = $51,300

Note: Increase in contribution margin = Increase in sales