The following information is from the 2017 Financial records of Dreyfuss Corp. A

Question

The following information is from the 2017 Financial records of Dreyfuss Corp.

Amounts in US$ '000s

Q1. Which costs are considered Fixed Costs?

Q2. What is Dreyfuss' breakeven level of revenue?

Q3. What is the margin of safety in dollars?

Revenue            400,000 Costs Manufacturing Costs            220,000 Annual Costs of Office Staff and Rent              90,000 Production Consumables                 2,000 Depreciation - Straight-line over 20 years              18,000 Property Taxes                 5,000 Sales Commission              13,000 Other Overhead Costs                 4,000 Total Costs            352,000 Net Income              48,000

Q1. Which costs are considered Fixed Costs?

Q2. What is Dreyfuss' breakeven level of revenue?

Q3. What is the margin of safety in dollars?

Explanation / Answer

Answer 1 Costs are considered Fixed Costs Annual Cost of office staff and Rent $90,000.00 Depreciation $18,000.00 Property Taxes $5,000.00 Other Overhead costs $4,000.00 Total Fixed Costs $117,000.00 Answer 2 Dreyfuss' breakeven level of revenue Break even level of revenue = Fixed cost / Contribution Margin % Contribution Margin % = (Sales - Variable cost) / Sales Total Variable cost = Total costs - Total fixed costs = $352000 - $117000 = $235000 Contribution Margin % = ($400000 - $235000) / $400000 = 41.25% Break even level of revenue = $117000 / 41.25% = $2,83,636.36 Answer 3 Margin of safety = Actual sales - break even sales = $400000 - $283636.36 = $1,16,363.64

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