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Cloud Storage is Almost Full Upgrade your storage to keep using iCloud WileyPl Wedt, Managerial Accounting, 7e ice Assignment Gradebook ORIONDownloadable eTextbook ment CALCULATOR RLL SCREEN PRINTER VERSOW BACK Do It! Review 5-5 Presto Company makes radios that sell for $26 each. For the coming year, management expects fixed costs to total $207,100 and variable costs to be $16.90 per un Compute the break-even point in dollars using the contribution margin (CM) ratio. (Round answer to O decimal places, e.g. 1,225.) Break-even point 22758 s K TO TEXT Compute the margin of safety ratio assuming actual sales are $843,000. (Round margin of safety ratio to 2 decimal places, e.g. 10.50.) 1% Margin of safety K TO TEXT Compute the sales dollars required to earn net income of $107,760. Required sales s LINK TO TEXTLK TO TEXT Version 4.24.9.3 All Rights Reserved. A Division of Jahn Wiley & Sons. Ins

Explanation / Answer

(1).

Break-even point (in dollars) = $591714

Explanation;

First of all let’s calculate contribution margin ratio;

CM ratio = Sale price – variable cost / Sale price

CM ratio ($26 – $16.90 / 26)

CM ratio = 35%

Now, let’s calculate break-even point (in dollars);

Break-even point (in dollars) = Fixed costs / CM ratio

Break-even point (in dollars) = $207100 / 0.35

Break-even point (in dollars) = $591714.28 OR $591714 (Approx.)

(2).

Margin of Safety Ratio = 29.81%

Explanation;

Margin of Safety Ratio = Actual sale – Break even point / Actual sale

Margin of Safety Ratio ($843000 – $591714 / $843000)

Margin of safety ratio = 29.81%

(3).

Sales dollar required to earn net income of $107760 will be = $899600

Explanation;

Sales dollar required to earn net income of $107760 will be calculated as follow;

Sales dollar required ($207100 + $107760) * $26 / ($26 – $16.90)

Sales dollar required = ($314860 * $26) / $9.10

Sales dollar required = $899600

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