Roan Johnson is evaluating a business opportunity to sell grooming kits at dog s

Question

Roan Johnson is evaluating a business opportunity to sell grooming kits at dog shows. Roan can buy the grooming kits at a wholesale cost of $32 per set. He plans to sell the grooming kits for $62 per set He estimates fixed costs such as travel costs, booth rental cost, and lodging to be $600 per dog show. Determine the number of grooming kits Roan must sell per show to breakeven. Assume Roan wants to earn a profit of $900 per show. Determine the sales volume in units necessary to earn the desired profit. Determine the sales volume in dollars necessary to earn the desired profit. Using the contribution margin format, prepare an income statement (condensed version) to confirm your answers to parts a and b Determine the margin of safety between the sales volume at the breakeven point and the sales volume required to earn the desired profit Determine the margin of safety in both sales dollars, units, and as a percentage Determine the number of grooming kits Roan must sell per show to breakeven. Begin by identifying the formula to compute the sales in units at various levels of operating income using the contribution margin approach.

Explanation / Answer

sale price per set = 62

cost per set = 32

contribution margin = 30

contribution margin (in%) = contribution / sale price * 100

= 30 / 62*100

= 48.39%

formula to compute sales in units at various levels of operating income using contribution margin approch =

fixed cost / contribution margin

= $600 / 30

= 20 units

sales in $ = $600 / .4839

= $1240

2.a) if desired profit = $900,

contribution = $1500

sales = 69 units

b)

sales = 41500/30 *62 = $85766.67

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