Green Lawnmower Manufactunng Ltd produces an engine for lawnmovvers. Budgeted da

Question

Green Lawnmower Manufactunng Ltd produces an engine for lawnmovvers. Budgeted data for sales of 50,000 units are: Cost of goods sold consists of $1,312,500 of variable costs and $437,500 of fixed costs Operating expenses consist of $100,000 of variable costs and $300,000 of fixed costs. Calculate the break-even point m units. Calculate the break-even point in dollars. Calculate the safety margin in units and dollars. Green lawnmower received an order for 10,000 units at a price of $35. There will be no change m fixed costs but variable costs will be reduced by $ 50 per unit because of cheaper packaging. Calculate the projected increase or decrease in profit from the order.

Explanation / Answer

Sales $2,500,000 Less: variable Cost COGS-Variable 1312500 Operating expense 100000 Contribution margin $1,087,500 Less: Fixed Cost COGS 437500 Operating expense 300000 Total Fixed Cost 737500 Net Income $350,000 No. of units 50000 Contribution margin per unit $21.75 Contribution margin ratio 0.435 Contribution/Sales Ans 1Break even in units = Fixed Cost/Contribution per unit 33908 units 7375000/21.75 Ans 2Break even in $ = Fixed Cost/Contribution margin ratio 1695402.299 $ Ans 3 Margin of safety in $ Sales-Breakeven sales $804,598 Margin of safety in $ Sales unit-Breakeven sales unit 16092 50000-33908 Ans 4` 10000 units Sales $2,500,000 350000 Less: variable Cost COGS-Variable 1312500 262500 Operating expense 100000 15000 1.5*10000 Contribution margin $1,087,500 $72,500 Less: Fixed Cost COGS 437500 Operating expense 300000 Total Fixed Cost 737500 Net Income $350,000 Increase in Income is $72500 as fixed cost will remain same if extra units are produced or not

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