Davies shows the following information for the next year for its single product,

Question

Davies shows the following information for the next year for its single product, ceramic pots.

Selling price: $15 per unit

Variable cost: $12 per unit

Fixed cost = $42,000

Requirement 1: Compute the break-even point in units and sale dollars. Show your computations (6 points)

Requirement 2: What amount of sales revenue would Davies need to realize next year in order to generate a net income of $60,000 after tax (assume a tax rate of 20%). Show your computations (10 points)

Requirement 3: Using the sales revenue computed in #2, compute the margin of safety in sales dollars.

Explanation / Answer

For the better understanding look at the above table from bottom to top.

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Requirement 1 Selling price $                15 Variable cost $                12 Contribution per Unit $                  3 Fixed Cost $        42,000 Breakeven Point ion Units
(42000/3)            14,000

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