Contribution margin ratio: Break-even point: Margin of safety: Margin of safety

Question

Contribution margin ratio: Break-even point: Margin of safety: Margin of safety ratio:
Break-even point: Margin of safety: Margin of safety ratio:
LUS Kimmel, Accounting: Tools for Business Decision Making, Se dy & Practice Assignment nt Gradebook ORION n Assignment n 29 Exercise 18-17 Oak Bucket Co., a manufacturer of wood buckets, had the following data for 2013. Sales Sales price Variable costs Fixed costs n 41 2,600 units $40 per unit $16.00 per unit n 51 $19,500 n 60 stion 2 stion 3 Your answer is incorrect. Try again. What is the contribution margin ratio? Contribution margin ratio in LINK TO TEXT stion 14 Your answer is incorrect. Try again. What is the break-even point in dollars? Break-even point sby Study LINK TO TEXT nt 1 Privacy Policy Ins, All Rights Reserved. A Division of 2ohn Wiley & Sons Ins MacBook Air

Explanation / Answer

Answer a.

Sales Price = $40 per unit
Variable Costs = $16 per unit

Contribution Margin Ratio = (Sales Price - Variable Costs) / Sales Price
Contribution Margin Ratio = ($40 - $16) / $40
Contribution Margin Ratio = 0.60 = 60%

Answer b.

Breakeven Point in dollars = Fixed Costs / Contribution Margin Ratio
Breakeven Point in dollars = $19,500 / 0.60
Breakeven Point in dollars = $32,500

Answer c.

Sales = 2,600 units
Sales Price = $40 per unit

Sales Revenue = Sales * Sales Price
Sales Revenue = 2,600 * $40
Sales Revenue = $104,000

Margin of Safety = Sales Revenue - Breakeven Point in dollars
Margin of Safety = $104,000 - $32,500
Margin of Safety = $71,500

Margin of Safety Ratio = Margin of Safety / Sales Revenue
Margin of Safety Ratio = $71,500 / $104,000
Margin of Safety Ratio = 0.6875
Margin of Safety Ratio = 68.75%

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