Sandy Bank, Inc, makes one model of wooden canoe. And, the information for it fo

Question

Sandy Bank, Inc, makes one model of wooden canoe. And, the information for it follows: Number of canoes produced and sold Total costs 500 700 850 Variable costs Fixed costs S 87,500 $122,500 $148,750 $178,500 $178 500 $178.500 $266,000 $301,000 $327 250 Total costs Cost per unit Variable cost per unit Fixed cost per unit Total cost per unit 175.0017500 $ 175.00 35700 255.00 21000 532.00 430.00 385.00 Required: 1. Suppose that Sandy Bank raises its selling price to $500 per canoe. Calculate its new calculations. Round your final answers to nearest whole number) break-even point in units and in sales dollars. (Do not round intermediate New Break-Even Units Cances Break-Even Sales Revenue

Explanation / Answer

Answer to Part 1.

Break Even Point (in Units) = Fixed Cost / Contribution Margin per Unit
Contribution Margin per Unit = $500 - $175
Contribution Margin per Unit = $325

Break Even Point (in Units) = 178,500 / 325
Break Even Point (in Units) = 549.23
or Break Even Point (in Units) =549 Canoes

Break Even Point (in Dollar Sales) = Fixed Cost / Contribution Margin Ratio
Contribution Margin Ratio = 325 / 500 * 100
Contribution Margin Ratio = 65%

Break Even Point (in Dollar Sales) = 178,500 / 0.65
Break Even Point (in Dollar Sales) = $274,615.38
or Break Even Point (in Dollar Sales) = $274,615

Answer to Part 2.

Margin of Safety (in Dollars) = Current Sales – Break Even Sales
Current Sales = 1,540 * $500 = $770,000

Margin of Safety (in Dollars) = $770,000 - $274,615
Margin of Safety (in Dollars) = $495,385

Margin of Safety (in %) = (Current Sales – Break Even Sales) / Current Sales * 100
Margin of Safety (in %) = (770,000 – 274,615) / 770,000 * 100
Margin of Safety (in %) = 495,385 / 770,000 * 100
Margin of Safety (in %) = 64.34%
or Margin of Safety (in %) = 64%

Answer to Part 3.

Profit = Sales – Variable Cost – Fixed Cost

Let the Number of Canoes to be sold be “x” units
$120,000 = ($500 * x) – ($175 * x) - $178,500
$298,500 = 325 * x
x = 918.46
Therefore, 918 units must be sold to achieve a target profit of $120,000.

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