Easy Writer manufactures an erasable ballpoint pen, which sells for $1.75. per unit. Management recently finished analyzing the results of the company’s operations for the current month. At a break-even point of 40,000 units, the company’s total variable costs are $50,000 and its total fixed costs amount to $20,000.
a. Calculate the contribution margin per unit.
b. Calculate the company’s margin of safety if monthly sales total 45,000 units.
c. Estimate the company’s monthly operating loss if it sells only 38,000 units.
d. Compute the total cost per unit at a production level of (1) 40,000 pens per month and (2) 50,000 pens per month. Explain the reason for the change in unit costs.
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