Break-Even Units and Sales Revenue: Margin of Safety Dupli-Pro Copy Shop provide

Question

Break-Even Units and Sales Revenue: Margin of Safety

Dupli-Pro Copy Shop provides photocopying service. Next year, Dupli-Pro estimates it will copy 3,130,000 pages at a price of $0.1 each in the coming year. Product costs include:

There is no variable selling expense; fixed selling and administrative expenses total $40,000.

Required:

In your computations that involve the contribution margin ratio, do not round the ratio.

1. Calculate the break-even point in units.
units

2. Calculate the break-even point in sales revenue.
$

3. Calculate the margin of safety in units for the coming year.
units

4. Calculate the margin of safety in sales revenue for the coming year.
$

5. What if the total selling and administrative expenses are reduced to $16,600? Recalculate the following:

  Direct materials $0.015     Direct labor $0.005     Variable overhead $0.002     Total fixed overhead $178,400  

Explanation / Answer

1) Break even point = Fixed cost/contribution margin per unit

Contribution margin per unit= 0.1-(0.015+0.005+0.002) = 0.078

Break even point = 218400/.078 = 2800000 units

2) Break even revenue = 2800000*.1 = 280000

3) Margin of safety in units = 3130000-2800000 = 330000

4) Margin of safety revenue = 330000*.10 = 33000

5) Calculate following after changes

Break even point = 195000/.078 = 2500000 units

Break even point revenue = 2500000*.1 = $250000

Margin of safety unit = 3130000-2500000 = 630000 units

Margin of safety sales revenue = 630000*.10 = $63000

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