Break-Even Units, Contribution Margin Ratio, Margin of Safety Khumbu Company\'s

Question

Break-Even Units, Contribution Margin Ratio, Margin of Safety Khumbu Company's projected profit for the coming year is as follows: Total Per Unit Sales $2,838,000 $43.00 Total variable cost 681,120 10.32 Contribution margin $ 2,156,880 $ 32.68 Total fixed cost 640,253 Operating income $ 1,516,627 Required: 1. Compute the break-even point in units. If required, round your answer to nearest whole value. units 2. How many units must be sold to earn a profit of $240,000? If required, round your answer to nearest whole value. units 3. Compute the contribution margin ratio. If required, round your answer to nearest whole number. % Using the rounded ratio from above, compute the additional profit that Khumbu would earn if sales were $160,000 more than expected. $ 4. For the projected level of sales, compute the margin of safety in units. units

Explanation / Answer

(1) Break even point in units

Fixed Cost / Contribution per unit i.e. 640253 / 32.68 = 19592 Unit

(2) No. of unit to be sold to earn the profit of $ 240000 :-

Fixed Cost + Desired Profit / Contribution per unit

i.e. 640253 + 240000 / 32.68 = 26936 Unit

(3) Contribution margin ratio :-

Contribution / sales x 100 i.e. 32.68/43 x 100 = 76%

(4) Margine of sefty

Actual sales - break even sales = margine of safety

i.e. (2838000) - (19592 x 43) = 1995544

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