Data Unit sales 20,000 units Selling price per unit $60 per unit Variable expens

ID: 2493674 • Letter: D

Question

Data Unit sales 20,000 units Selling price per unit $60 per unit Variable expenses per unit $45 per unit Fixed expenses $240,000 Enter a formula into each of the cells marked with a ? below Review Problem: CVP Relationships Compute the CM ratio and variable expense ratio Selling price per unit $60 per unit Variable expenses per unit 45 per unit Contribution margin per unit $15 per unit CM ratio 25% Variable expense ratio 75% Compute the break-even Break-even in unit sales ? units Break-even in dollar sales ? Compute the margin of safety Margin of safety in dollars ? Margin of safety percentage ? Compute the degree of operating leverage Sales ? Variable expenses ? Contribution margin ? Fixed expenses ? Net operating income ? Degree of operating leverage ?

Explanation / Answer

Answer

Figures in $

Particulars

Per unit

Total

Unit sales

20,000

Selling price

1200000

Variable expenses

900000

Contribution (a-b)

300000

Fixed costs

2,40,000

Operating income (c-d)

60,000

Contribution margin Ratio = Contribution/sales * 100

= 300000 / 1200000 * 100

= 25 %

Variable Expense Ratio = Variable cost / Sales * 100

= 900000 / 1200000 * 100

= 75%

Break Even point (units) = Total Fixed costs / Contribution per unit

= 2,40,000 / 15

= 16000

Break Even point (In dollar terms) = Total Fixed costs / Contribution margin ratio

= 2,40,000 / 25 %

= $ 960000

Margin of safety (in dollar terms) = Actual Sales – Sales at breakeven point

= $ 1200000 - $ 960000

= $ 240000

Margin of safety (in %) = (Actual Sales – Sales breakeven point) / Actual Sales * 100

=( $ 1200000 - $ 960000 ) / $ 1200000 * 100

= $ 240000 / $ 1200000 * 100

= 20 %

Degree of operating leverage = Contribution margin / operating income

= 300000 / 60,000

= 5 times