Sandoval Company makes radios that sell for $26 each. For the coming year, manag

Question

Sandoval Company makes radios that sell for $26 each. For the coming year, management expects fixed costs to total $224,004 and variable costs to be $17.42 per unit.

(a) Compute the break-even point in dollars using the contribution margin (CM) ratio.

Break-even point $______________

(b) Compute the margin of safety ratio assuming actual sales are $919,783. (Round margin of safety ratio to 1 decimal place, e.g. 10.5%.)

Margin of safety % _________________

(c) Compute the sales dollars required to earn net income of $70,290.

Required sales $ ___________

Explanation / Answer

(a) Compute the break-even point in dollars using the contribution margin (CM) ratio. CM ratio = (26-17.42)/26 = .33 224,004/.33 = 678,800 Break-even point $678,800 (b) Compute the margin of safety ratio assuming actual sales are $919,783. (Round margin of safety ratio to 1 decimal place, e.g. 10.5%.) (919783-678,800)/919783 = 26.2% Margin of safety % 26.2% (c) Compute the sales dollars required to earn net income of $70,290. (70,290 + 224,004)/.33 = 891,800 Required sales $ 891,800

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