Kindly answer only Question 5 Note : the Answer Should be Computerized Section 1
ID: 2554241 • Letter: K
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Kindly answer only Question 5
Note : the Answer Should be Computerized
Section 1 (5 Marks) [CLo 1] ABS's Cellular sells phones for $120. The unit variable cost per phone is $72 plus selling commission of 10%. Fixed m costs total $1,550 per month, while fixed selling and administrative costs total $2,500. Required: What is the contribution margin per phone? What is the contribution margin ratio? 1. 2. What is the breakeven point in phones? Interpret. How many phones must be sold to earn a targeted profit of s9,500? Interpret. Calculate the margin of safety. Interpret. 3. 4. 5.Explanation / Answer
Margin of safety:
In Breakeven analysis (accounting), margin of safety is how much output or sales level can fall before a business reaches its breakeven point. It is calculated by subtracting the break-even sales from the budgeted or projected sales. This formula shows the total number of sales above the breakeven point.
Since, In the given case there are no projected sales the margin of safety is reached after 113 units which is break even sales in units.
1.Contribution Margin:
In the given case, Variable cost = 72 + 12 selling commission (10% of sales) = 84
Contribution Margin = Sales – Variable cost
Therefore, Contribution Margin = 120-84 = 36 per unit
2.Contribution Margin Ratio:
Contribution Margin Ratio = contribution margin/sales = 36/120 = 30%
3.Break Even point:
The break-even point (BEP) is the point at which total cost and total revenue are equal. There is no net loss or gain, and one has "broken even," though opportunity costs have been paid and capital has received the risk-adjusted, expected return.
Break Even point in phones = Fixed cost/ Contribution Margin
Fixed Costs = 1550+2500 = 4,050
= 4,050/36 = 113 units
4.Desired sales:
The formula for Desired sales to earn the targeted income is
= Fixed Cost + Targeted Income/Contribution Margin
= (4,050 + 9,500)/36 = 377 units.
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