Do It! Review 18-5 Presto Company makes radios that sell for $26 each. For the c
ID: 2547185 • Letter: D
Question
Do It! Review 18-5 Presto Company makes radios that sell for $26 each. For the coming year, management expects fixed costs to total $228,000 and variable costs to be $16.64 per unit. X Your answer is incorrect. Try again. Compute the break-even point in dollars using the contribution margin (CM) ratio. (Round answer to O decimal places, e.g. 1,225.) Break-even point 682051 LINK TO TEXT ×| Your answer is incorrect. Try again Compute the margin of safety ratio assuming actual sales are $811,000. (Round margin of safety ratio to 2 decimal places, e.g. 10.50.) Margin of safety LINK TO TEXT x Your answer is incorrect. Try again.Explanation / Answer
Contribution Margin = Sales Price Per Unit - Variable Cost Per Unit
= $ 26 - $ 16.64
= $ 9.36
Contribution Margin Ratio =Contribution Margin Per Unit / Sale Price Per Unit *100
= $ 9.36/ $ 26 *100
= 36.00%
Break Even Point (In Dollars) = Fixed Cost /Contribution Margin Ratio
= $ 228,000 /36%
= $ 633,333
Hence, the correct answer is $ 633,333
Margin of Safety = (Actual Sales - Break Even Sales)/ Actual Sales *100
=( $ 811,000 - $ 633,333 ) / $ 811,000 *100
= 21.91%
Hence the correct answer is 21.91%
Target Profit = $ 69,648
Add: Fixed Cost = $ 228,000
Contribution Margin = $ 297,648
Sales in Dollars Required to earn required income = Contribution Margin / Contribution Margin Ratio
= $ 297,648 /36%
= $ 826,800
Hence the correct answer is $ 826,800
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