Lancer Audio produces a high-end DVD player that sells for $1,220. Total operati

Question

Lancer Audio produces a high-end DVD player that sells for $1,220. Total operating expenses for the past 12 months are as follows:

Use the high-low method to estimate fixed and variable costs.

Based on these estimates, calculate the break-even level of sales in units. (Round answer to whole units, e.g. 15.)

Calculate the margin of safety for the coming August assuming estimated sales of 175 units.

Estimate total profit assuming production and sales of 175 units.

Units Produced and Sold Cost August 167 $140,300 September 129 116,800 October 152 130,400 November 149 127,100 December 157 133,300 January 174 146,905 February 139 123,700 March 150 130,900 April 146 127,900 May 149 129,400 June 139 122,800 July 136 120,500

Explanation / Answer

Variable cost = (146905 - 116800)/(174 - 129)

= 30105/45

= 669

Fixed cost = 146905 - 174 x 669

= 30499

Contribution margin per unit = 1220 - 669

= 551

Break even point = Fixed cost/Contribution per unit

= 30499/551

= 55 units

Margin of safety = Sales - Break even point

= 175 x 1220 - 55 x 1220

= 146400

Profit = 175 x (1220 - 669) - 30499

= 65926

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