Question 1 Presto Company makes radios that sell for $26 each. For the coming ye
ID: 2528994 • Letter: Q
Question
Question 1 Presto Company makes radios that sell for $26 each. For the coming year, management expects fixed costs to total $309,100 and variable costs to be $9.10 per unit. Compute the break-even point in dollars using the contribution margin (CM) ratio. (Round answer to 0 decimal places, e.g. 1,225.) Break-even point $ LINK TO TEXT Compute the margin of safety ratio assuming actual sales are $850,000. (Round margin of safety ratio to 2 decimal places, e.g. 10.50.) Margin of safety % LINK TO TEXT Compute the sales dollars required to earn net income of $243,530. Required sales $
Explanation / Answer
Break-even point in dollars = $4,75,538
Contribution per unit = Selling price per unit – Variable cost per unit
= $26 - $9.10 = $16.90
Contribution Ratio = ($16.90/$26)*100 = 65%
Break Even point in Dollars = Fixed Cost / Contribution ratio
= $3,09,100 / 0.65
= $4,75,538
Compute the margin of safety ratio = 44.05%
Margin of safety ratio = (Margin of safety/Actual Sales)*11
Margin of safety = Actual Sales – Break Even Sales
= $8,50,000 - $4,75,538
= $3,74,462
Therefore, Margin of safety ratio = ($3,74,462 / $8,50,000)*100
= 44.05%
sales dollars required to earn net income of $243,530 = $8,50,200
Sales dollars required = (Fixed Costs + Target Income) / Contribution ratio
= ($3,09,100 + $2,43,530) / 0.65
= $5,52,630 / 0.65
= $8,50,200
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