Question

Exercise 11-16 Whispering Winds Company estimates that variable costs will be 66% of sales, and fixed costs will total $1,632,000. The selling price of the product is $10. Compute the break-even point in (1) units and (2) dollars. (Round intermediate calculation to 2 decimal places, e.g. 52.75.) (1) Break-even sales units Break-even sales LINK TO TEXT LINK TO TEXT VIDEO: SIMILAR PROBLEM VIDEO: SIMILAR PROBLEM Assuming actual sales are $6,000,000, compute the margin of safety in (1) dollars and (2) as a ratio. (Round ratio to 0 decimal places, e.g. 20.) (1) Margin of safety (2) Margin of safety ratio

Answer 1

(1)

Contribution margin per unit = sales price per unit - variable cost per unit

= $10 - ($10 x 66%) = $3.4

Break even point (unit sales) = fixed expenses/contribution margin per unit

= $1632000/$3.4

= 480000 units

(2)

Contribution margin ratio = contribution margin per unit/sales price per unit

= $3.4/$10 = 34%

Break even point (dollar sales) = fixed expenses/contribution margin ratio

= $1632000/34%

= $4800000

————————————————

(1)

margin of safety (in dollars) = total sales - break even sales

= $6,000,000 - $4,800,000

= $1,200,000

(2)

margin of safety (in %) = (total sales - break even sales)/total sales

= $1,200,000/$6,000,000

= 20%