(TCO 4) Legal Beagals Inc. is a legal services firm that files incorporation pap
ID: 2389138 • Letter: #
Question
(TCO 4) Legal Beagals Inc. is a legal services firm that files incorporation papers for small businesses. They charge $1,000 per application. This year's income statement shows the following:Sales $1,440,000
Variable Expenses $1,008,000
Contribution margin $432,000
Fixed costs $250,000
Profit $182,000.
Required:
(a) Compute the break-even point in units.
(b) Compute the contribution margin ratio.
(c) Compute the current margin of safety.
(d) How many applications must the company sell to make a profit of $350,000?
Explanation / Answer
(TCO 4) Legal Beagals Inc. is a legal services firm that files incorporation papers for small businesses. They charge $1,000 per application. This year's income statement shows the following:
Sales $1,440,000
Variable Expenses $1,008,000
Contribution margin $432,000
Fixed costs $250,000
Profit $182,000.
Required:
(a) Compute the break-even point in units.
Unit Sold = 1440000/1000 = 1440
Variable Cost Per unit = 1008000/1440 = $700
Breakeven in Units= Fixed Cost/ Contribution Margin Per Unit
=250000/(1000-700) = 833.33
(b) Compute the contribution margin ratio.
Contribution Margin Ratio= Contribution margin/Sales
= 432000/1440000= 30%
(c) Compute the current margin of safety.
= Sales – Breakeven Sales = 1440000 – 250000/30% = 606,666.70
(d) How many applications must the company sell to make a profit of $350,000?
No.
Application to be sold
=Fixed Cost + Required Profit/Contribution Margin Per Unit= (350000+250000)/300 = 2000
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