In the month of June, Jose Hebert’s Beauty Salon gave 4,500 haircuts, shampoos,

Question

In the month of June, Jose Hebert’s Beauty Salon gave 4,500 haircuts, shampoos, and permanents at an average price of $30. During the month, fixed costs were $16,500 and variable costs were 75% of sales.

Determine the contribution margin in dollars, per unit and as a ratio. (Round contribution margin per unit and contribution margin ratio to 2 decimal places, e.g. 5.25 & 10.50.)

%

Using the contribution margin technique, compute the break-even point in dollars and in units. (Round answers to 0 decimal places, e.g. 1,225.)

Compute the margin of safety in dollars and as a ratio. (Round answers to 0 decimal places, e.g. 1,225.)

Contribution margin $

Contribution margin per unit $

Contribution margin ratio

%

Explanation / Answer

Variable cost=($30*75%)=$22.5

Hence contribution margin=Sales-Variable cost

=(30-22.5)

which is equal to

=$7.50 per unit.

=(7.5*4500)=$33750

contribution margin ratio=contribution margin/Sales

=(7.5/30)=25%

Breakeven point=Fixed cost/contribution margin

=(16500/7.5)=2200 units

=Fixed cost/contribution margin ratio

=(16500/0.25)=$66000.

Margin of safety=Total sales-Breakeven sales

=(4500*30)-66000=$69000

Margin of safety%=Margin of safety/Total sales

=(69000/(4500*30)

=(69000/135000)=51%(Approx).

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