AE5-16 (b, c) Grissom Company estimates that variable costs will be 60% of sales

Question

AE5-16 (b, c)


Grissom Company estimates that variable costs will be 60% of sales, and fixed costs will total $804,000. The selling price of the product is $8.




Compute the break-even point in (1) units and (2) dollars. (Round answers to 0 decimal places, e.g. 125.)
Breakeven sales in units units
Breakeven sales in dollars $







Compute the margin of safety in (1) dollars and (2) as a ratio, assuming actual sales are $2.7 million. (Round answers to 0 decimal places, e.g. 125.)
Margin of safety in dollars $
Margin of safety ratio %

Explanation / Answer

Grissom Company estimates that variable costs will be 60% of sales, and fixed costs will total $804,000. The selling price of the product is $8. Compute the break-even point in (1) units and (2) dollars. (Round answers to 0 decimal places, e.g. 125.) $804,000/(1-0.60) = $2,010,000 2,010,000/8 = 251,250 units Breakeven sales in units units 251,250 Breakeven sales in dollars $2,010,000 Compute the margin of safety in (1) dollars and (2) as a ratio, assuming actual sales are $2.7 million. (Round answers to 0 decimal places, e.g. 125.) 2,700,000 – 2,010,000 = 690,000 690,000/2,700,000 = 0.2555 or 26% Margin of safety in dollars $690,000 Margin of safety ratio 26%

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