Thad Morgan, a motorcycle enthusiast, has been exploring the possibility of rela

Question

Thad Morgan, a motorcycle enthusiast, has been exploring the possibility of relaunching the Western Hombre brand of cycle that was popular in the 1930s. The retro-look cycle would be sold for $14,000 and at that price, Thad estimates 600 units would be sold each year. The variable cost to produce and sell the cycles would be $9,800 per unit. The annual fixed cost would be $1,890,000.

What is the margin of safety in dollars (Omit the "$" sign in your response.)

Thad Morgan, a motorcycle enthusiast, has been exploring the possibility of relaunching the Western Hombre brand of cycle that was popular in the 1930s. The retro-look cycle would be sold for $14,000 and at that price, Thad estimates 600 units would be sold each year. The variable cost to produce and sell the cycles would be $9,800 per unit. The annual fixed cost would be $1,890,000.

Explanation / Answer

Break even in unit sales=1890000/(14000-9800)=450

b. margin of safety= (14000*600)-(14000*450)=2100000

contribution=(14000*600)-(9800*600)=2520000

PBIT=252000-1890000=630000

c. DOL=Contribution/PBIT=2520000/630000=4

d. net operating income(loss)=-736000

Net operating income(loss)=(11000*600)-(9800*600)-1456000=-736000

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