10.00 points Mini-Exercise 12-5 Break-even analysis LO 9, 11 Current operating i

Question

10.00 points Mini-Exercise 12-5 Break-even analysis LO 9, 11 Current operating income for Bay Area Cycles Co. is $24,000. Selling price per unit is $100, the contribution margin ratio is 30%, and fixed expense is $96,000. Required: 1. Calculate Bay Area Cycle's break-even point in units and total sales dollars Answer is complete but not entirely correct. 960 Break-even units Break-even dollars 32,000 2. Calculate Bay Area Cycle's margin of safety and margin of safety ratio. Margin of safety Margin of safety ratic

Explanation / Answer

Answer to 1

If contribution margin ratio is 30%, variable cost ratio is 70% as both are 100% combinedly.

Answer to 2

Margin of Safety in Units = Total Sales - Break Even Sales

   = 4000 - 3200

   = 800 Units

Margin of Safety in $ Sales = Total Sales - Break Even Sales

= 4000 x 100 - 320000

   = $80000

Particulars Amt Selling Price 100 Less: Variable Cost (100 x 70%) 70 Contribution Margin (A) 30 CM Ratio (B) 30% Fixed Cost (C ) 96000 Break Even Units (C/A) 3200 Break Even $ (C/B) 320000

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