Zachary Adams has recently been hired as the marketing manager by Luxon Limited.
ID: 2340394 • Letter: Z
Question
Zachary Adams has recently been hired as the marketing manager by Luxon Limited. Adams is convinced that Luxon should launch a major new promotion in August that includes a tie-in with a new movie. For every one of Luxon's products sold, the customer would be given a free ticket to the movie (this is a limited time offer) Luxon's income statement for August, based orn actual sales of 6,000 units, was as follows: Sales revenue Less: Variable costs Contribution margin Less: Fixed costs Profit $480,000 336,000 144,000 105,000 $39,000 Adams has conducted some market research and concluded that the promotion would increase sales by 4,000 units per month. The fixed costs for this promotion would be $2,800 and a movie ticket would cost Luxon $9Explanation / Answer
Answer
Margin of Safety = Sales revenue – Break Even sale
Working
Company A
Company B
A [given]
Sales Revenue
$ 150,000.00
$ 150,000.00
B [Assumed]
Units sold
$ 20,000.00
$ 20,000.00
C [assumed]
Variable cost per unit
$ 3.00
$ 4.00
D = B x C
Total Variable cost
$ 60,000.00
$ 80,000.00
E = A - D
Contribution margin
$ 90,000.00
$ 70,000.00
F = E/B
Contribution margin per unit
$ 4.50
$ 3.50
G [assumed]
Fixed Cost
$ 27,000.00
$ 19,950.00
H = E - G
Net Operating Income
$ 63,000.00
$ 50,050.00
I = G/F
Break Even Unit sales
$ 6,000.00
$ 5,700.00
J = B - I
Margin of Safety Sale
$ 14,000.00
$ 14,300.00
Working
Company A
Company B
A [given]
Sales Revenue
$ 150,000.00
$ 150,000.00
B [Assumed]
Units sold
$ 20,000.00
$ 20,000.00
C [assumed]
Variable cost per unit
$ 3.00
$ 4.00
D = B x C
Total Variable cost
$ 60,000.00
$ 80,000.00
E = A - D
Contribution margin
$ 90,000.00
$ 70,000.00
F = E/B
Contribution margin per unit
$ 4.50
$ 3.50
G [assumed]
Fixed Cost
$ 27,000.00
$ 19,950.00
H = E - G
Net Operating Income
$ 63,000.00
$ 50,050.00
I = G/F
Break Even Unit sales
$ 6,000.00
$ 5,700.00
J = B - I
Margin of Safety Sale
$ 14,000.00
$ 14,300.00
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.