EasyWriter manufactures an erasable ballpoint pen, which sells for $1.75 per uni

Question

EasyWriter 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. PLEASE CALCULATE THE FOLLOWING: 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 the unit costs. NEED HELP ON THIS THANK YOU

Explanation / Answer

A. Contribution margin per unit Total sales at break even = 70000 Total variable costs at break even = 50000 Contribution margin = 20000 Contribution margin per unit = $0.50 (20000/40000) B. 45000 * .50 = 22500 Margin of safety = 2500 (22500-20000_ C. 38000*.50 = 19000 Operating loss = 1000 (19000-20000) D. Cost per unit = variable cost per unit + Fixed cost per unit 1) 40000 pens Variable cost = 50000/40000 = 1.25 (this will not change no matter how many we manufacture) Fixed cost = 20000/40000 = 0.50 Cost per unit: 1.75 2) 50000 Variable cost = 1.25 Fixed cost = 20000/50000 = 0.40 Cost per unit: 1.65 Hope this helps!

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