Glacial Comp any estimates that variable costs will be 57.3 % of sales, and fixe

Question

Glacial Comp any estimates that variable costs will be 57.3 % of sales, and fixed costs wa total $ 677,000 The selling price of the product is $ 600 Compute the break-even point in (1) units and (2) dollars. Roond ?ntermed te caladation to 2 do,mal plKes, ea 52.25 and inal ans, ers to ad (1) Break-even sales (2) Break even sales int per szs Assurning actual sales are % 1 801,000 . compute the margen of safety in (1) dollars and (2) as a ratio (Roannd ratio to 0 dnimal places, e g 20,) (1) Margin of safety (2) Margin of safety ratio

Explanation / Answer

Solution 1:

Contribution margin ratio = 1 - variable cost ratio = 1- 0.573 = 42.7%

Selling price per unit = $6

Contribution margin per unit = $6 * 42.7% = $2.562

Fixed cost = $677,000

Breakeven sales units = Fixed costs / contribution margin per unit = $677,000 /$2.562 = 264247 units

Breakeven sales in dollar = Fixed costs / contribution margin ratio = $677,000 / 42.7% = $1,585,480

Solution 2:

Margin of safety in dollar = Current sales - Breakeven sales = $1,801,000 - $1,585,480 = $215,520

Margin of safety ratio = (Current sales - Breakeven sales) . Current sales

= $215,520 / $1,801,000 = 11.97% = 12% (rounded off)

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