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Zaccaria Corporation has provided the following contribution format income statement. questions concern situations that are w

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1) Contribution margin ratio

  • The contribution margin ratio is the difference between a company's sales and variable expenses, expressed as a percentage.

CMR = Total contribution margin / Total sales

   = 60000 / 300000

CMR = 0.20 or 20%

2) Break-even point in units of sales

  • It's the point where sales and expenses are the same or when the sales of a company are enough to cover the expenses of the business

Bep in units = Total fixed cost / cm per units

= 58800 / 12

   bep in units = 4900 units

3) Margin of safety in dollars

  • The margin of safety is the difference between the amount of expected profitability and the break-even point. The margin of safety formula is equal to current sales minus the break-even sales

Margin of safety in dollars = Current sales – Break-even sales(bep in units x selling price ).

= 300000 – (4900 x 60)

= 300000 – 294000

MOS in dollars = $6000

4) Degree of operating leverage

  • The degree of operating leverage (DOL) is a measure used to evaluate how a company's operating income changes after a percentage change in its sales. A company's operating leverage involves fixed costs and variable costs.

DOL = Contribution margin / operating income or (EBIT)

= 60000 / 1200

DOL = 50

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