Glacial Company estimates that variable costs will be 55.2% of sales, and fixed

Question

Glacial Company estimates that variable costs will be 55.2% of sales, and fixed costs will total $678,000. The selling price of the product is $5.00

Yams Company reports the following operating results for the month of August: sales $390,000 (units 5,000), variable costs $256,000, and fixed costs $91,000. Management is considering the following independent courses of action to increase net income.

Glacial Company estimates that variable costs will be 55.2% of sales, and fixed costs will total $678,000. The selling price of the product is $5.00

Explanation / Answer

Break Even sales ( Units) = Fixed Costs / ( Sales per unit - Variable cost per unit)

Break Even sales ( Units) = 678000 / ( 5 - 5*55.2%) = 302679 Units

Break Even sales Dollar = 302679 * 5 = 1513395

Margin of safety = Total sales - Break even sales = 2246000 - 1513395 = 732605

Margin of safety % = Margin of safety / sales = 732605 / 2246000 = 32.62%

Particulars Original Selling Price up by 14% Reduce Var Cost to 57% Sales                 390,000.00                           444,600.00                            390,000.00 Variable Costs                 256,000.00                           256,000.00                            145,920.00 Contribution                 134,000.00                           188,600.00                            244,080.00 Fixed Costs                    91,000.00                             91,000.00                              91,000.00 Net Income                    43,000.00                             97,600.00                            153,080.00

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