In the month of June, Bonita\'s Beauty Salon gave 3,460 haircuts, shampoos, and

Question

In the month of June, Bonita's Beauty Salon gave 3,460 haircuts, shampoos, and permanents at an average price of $50. During the month, fixed costs were $17,900 and variable costs were 60% of sales.

    
Determine the contribution margin in dollars, per unit, and as a ratio. (Round answers to 0 decimal places, e.g. 125.)
Contribution margin (in dollars)     $
Contribution margin per unit     $
Contribution margin ratio    %


Using the contribution margin technique, compute the break-even point in dollars and in units. (Round answers to 0 decimal places, e.g. 125.)
Break-even point (in dollars)     $
Break-even point (in units)     units

Compute the margin of safety in dollars and as a ratio. (Round answers to 0 decimal places, e.g. 125.)
Margin of safety (in dollars)                                                                                          $
Margin of safety (ratio)    %
                                                                                     

Explanation / Answer

Contribution margin=Total sales-Total variable costs

=$(3460*50)-(3460*50*60%)

=$69200

Contribution margin per unit =$69200/3460

=$20 per unit

Contribution margin ratio=Contribution margin/total sales

=69200/173000

=40%

Break-even point (in dollars) $=Fixed cost/Contribution per unit*Price per unit

=17900/20*50

=$44750

Break-even point (in units) units=Fixed cost/Contribution per unit

=895 units

Margin of safety=Sales-Break even point

=173000-44750

=$128250

Margin of safety (ratio) %=(Sales-Break even point)/Sales

=128250/173000*100%

=74.13%

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