Break-Even Units, Contribution Margin Ratio, Margin of Safety Khumbu Company\'s
ID: 2573787 • Letter: B
Question
Break-Even Units, Contribution Margin Ratio, Margin of Safety Khumbu Company's projected profit for the coming year is as follows: Total Per Unit $36.50 15.33 $21.17 Sales $2,956,500 1,241,730 $ 1,714,770 1,129,974 $584,796 Total variable cost Contribution margin Total fixed cost Operating income Required: 1. Compute the break-even point in units. If required, round your answer to nearest whole value. units 2. How many units must be sold to earn a profit of $240,000? If required, round your answer to nearest whole value. units 3. Compute the contribution margin ratio. If required, round your answer to nearest whole number using the rounded ratio from above, compute the additional profit that Khumbu would earn if sales were $160,000 more than expectedExplanation / Answer
Answer
Amount
per unit
Units [Amount / per unit]
Sales (A)
2956500
36.5
81000
Total variable cost (B)
1241730
15.33
81000
Contribution margin (A – B)
1714770
21.17
81000
Fixed Cost
1129974
Operating Income
584796
A
Fixed Cost
1129974
B
Contribution per unit
21.17
C=A/B
Break Even in units
53376.193 or 53376 units
A
Target profit
240000
B
Fixed cost
1129974
C=A+B
Contribution required at Target profit
1369974
D
Contribution per unit
21.17
E=C/D
Units that must be sold to earn $240000 profit
64712.99 or 64713 units
A
Contribution per unit
21.17
B
Sale price per unit
36.5
C=A/B
Contribution margin ratio
58%
---- Increase in profit if Sales are increased by $160000
A
Increase in Sale
160000
B
Contribution margin ratio
58%
C=A x B
Additional Profits
92800
A
Fixed Cost
1129974
B
Contribution margin ratio
58%
C=A/B
Break Even in Sales $
1948231
D
Total Sales in $
2956500
E=D-C
Margin of Safety Sales $
1008269
F
Sale price per unit
36.5
G=E/F
Margin of Safety in Units
27623.807 or 27624 units
Amount
per unit
Units [Amount / per unit]
Sales (A)
2956500
36.5
81000
Total variable cost (B)
1241730
15.33
81000
Contribution margin (A – B)
1714770
21.17
81000
Fixed Cost
1129974
Operating Income
584796
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