Exercise 18-16 lacial Company estimates that variable costs will be 62.4% of sal

Question

Exercise 18-16 lacial Company estimates that variable costs will be 62.4% of sales, and fixed costs wil total S695000. The selling price of the product is $4.40 Compute the break-even point in (1) units and (2) dollars. (Round answers to O decimal places, e.g. 5,275.) (1) Break-even sales (2) Break-even sales s units LINK TO TEXT VIDEO: SIMILAR EXERCISE Assuming actual sales are $2,379,000, compute the margin of safety in (1) dollars and (2) as a ratio. (Round ratio to O decimal places, e.g. 20.) (1) Margin of safety (2) Margin of safety ratio Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT VIDEO: SIMILAR EXERCISE Question Attempts: 0 of 2 used SAVE FOR LATER SUBMIT ANSWE

Explanation / Answer

Facts of the Question:

Selling price = $ 4.40

Contribution per unit = Selling price – variable cost

Variable cost = 62.4% = 4.40*62.4% = 2.7456

Contribution per unit = 4.40 – 2.7456 = 1.6544

Profit volume ratio = sales Profit volume ratio – variable cost = 100% – 62.4% = 37.6%

Fixed Cost = 695000

Actual Sales = 2379000

Solution:

Break even sales (units) = Fixed Cost / Contribution per unit = 695000 / 1.6544 = 420092 units

Break even sales (value) = Fixed Cost / Profit volume ratio = 695000 / 37.6% = 1848404

Margin of safety = Actual Sales – Break even sales = 2379000 – 1848404 = 530596

Margin of safety ratio = Margin of safety/ Actual Sales * 100 = (530596 / 2379000) * 100 = 22%

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