Presto Company makes radios that sell for $29 each. For the coming year, managem

Question

Presto Company makes radios that sell for $29 each. For the coming year, management expects fixed costs to total $209,343 and variable costs to be $20.01 per unit. (a) Compute the break-even point in dollars using the contribution margin (CM) ratio. Break-even point $ Compute the margin of safety ratio assuming actual sales are $852,652. (Round margin of safety ratio to 2 decimal places, e.g. 10.50%.) Margin of safety % Compute the sales dollars required to earn net income of $100,812. Required sales $

Explanation / Answer

Solution.

(a) Compute the break-even point in dollars using the contribution margin (CM) ratio.

B.E.P = Fixed costs to total $209,343 / 31%

= $675,300.

B. Compute the margin of safety ratio assuming actual sales are $852,652.

Formula = Actual sales - Margin of safety.

= $852,652 - $675,300. = $177,352

C .Margin of safety %

= ($852,652 - $675,300) / $852,652

= 20.80%

D. Compute the sales dollars required to earn net income of $100,812. Required sales $.

Fixed Cost = $209,343.

Required net income = $100,812

Contribution margin = 31%

Required sales dollar = ( $209,343. + $100,812 ) / 31%

= $1,000,500

Particulars Per unit Sell      29.00 Variable cost    (20.01) Contribution margin        8.99 C.M ratio            31

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