E6-6 Identifying Break-Even Point, Analyzing How Price Changes Affect Profitabil

Question

E6-6 Identifying Break-Even Point, Analyzing How Price Changes Affect Profitability; Calculating Margin of Safety, Target Profit [LO 6-1, 6-2, 6-3, 6-4]

Sandy Bank, Inc., makes one model of wooden canoe. And, the information for it follows:

1. Suppose that Sandy Bank raises its selling price to $500 per canoe. Calculate its new break-even point in units and in sales dollars. (Do not round intermediate calculations. Round your final answers to nearest whole number.)

2. If Sandy Bank sells 900 canoes, compute its margin of safety in dollars and as a percentage of sales. (Use the new sales price of $500.) (Round your answers to the nearest whole number.)

3. Calculate the number of canoes that Sandy Bank must sell at $500 each to generate $110,000 profit. (Round your answer to the nearest whole number.)

Number of canoes produced and sold 450 650 800 Total costs Variable costs $ 65,250 $ 94,250 $ 116,000 Fixed costs $ 280,800 $ 280,800 $ 280,800 Total costs $ 346,050 $ 375,050 $ 396,800 Cost per unit Variable cost per unit $ 145.00 $ 145.00 $ 145.00    Fixed cost per unit 624.00 432.00 351.00    Total cost per unit $ 769.00 $ 577.00 $ 496.00   

1. Suppose that Sandy Bank raises its selling price to $500 per canoe. Calculate its new break-even point in units and in sales dollars. (Do not round intermediate calculations. Round your final answers to nearest whole number.)

New Break-Even Units Canoes Break-Even Sales Revenue

2. If Sandy Bank sells 900 canoes, compute its margin of safety in dollars and as a percentage of sales. (Use the new sales price of $500.) (Round your answers to the nearest whole number.)

Margin of Safety Percentage of Sales %

3. Calculate the number of canoes that Sandy Bank must sell at $500 each to generate $110,000 profit. (Round your answer to the nearest whole number.)

Target Sales Units Canoes

Explanation / Answer

1. Break even point = 280800/(500-145)= 791 units

Break even point revenue = 791*500 = 395500

2. Margin on safety = 900-791 = 109 units

Margin on safety = 109*500 = $54500

Percentage of sales = 54500*100/(900*500) = 12%

3. Target sales unit = (110000+280800)/355 = 1101 canoes

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