the toal fiu xed y. Zane Company\'s unit selling price is s30, the variable cost

Question

the toal fiu xed y. Zane Company's unit selling price is s30, the variable cost is $14, and costs are $96,000. A being (a) Compute the current break-even sales (in units). (b) Compute the anticipated break-even sales (in units), assuming that the unit A proposal is being evaluated to increase the selling price to $34 selling price is increased and all costs remain constant Company XY had fixed costs of $200,000, variable costs of $325,000, and actual sales of $1,000,000. If the company has a break-even point at $300,000 in sales revenue, determine (a) the margin of safety expressed in dollars, (b) the margin of safety expressed as a percentage of sales, (c) the contribution margin ratio, and (d) the operating income.

Explanation / Answer

Answer 1.

Part a:

Selling Price = $30
Variable Cost = $14

Contribution Margin = Selling Price - Variable Cost
Contribution Margin = $30 - $14
Contribution Margin = $16

Break-even Point sales in units = Fixed Costs / Contribution Margin
Break-even Point sales in units = $96,000 / $16
Break-even Point sales in units = 6,000

Part b:

Selling Price = $34
Variable Cost = $14

Contribution Margin = Selling Price - Variable Cost
Contribution Margin = $34 - $14
Contribution Margin = $20

Break-even Point sales in units = Fixed Costs / Contribution Margin
Break-even Point sales in units = $96,000 / $20
Break-even Point sales in units = 4,800

Answer 2.

Fixed Costs = $200,000
Variable Costs = $325,000
Actual Sales = $1,000,000
Break-even Sales = $300,000

Margin of Safety = Actual Sales - Break-even Sales
Margin of Safety = $1,000,000 - $300,000
Margin of Safety = $700,000

Margin of Safety in percent = Margin of Safety / Actual Sales
Margin of Safety in percent = $700,000 / $1,000,000
Margin of Safety in percent = 70%

Contribution Margin Ratio = (Actual Sales - Variable Costs) / Actual Sales
Contribution Margin Ratio = ($1,000,000 - $325,000) / $1,000,000
Contribution Margin Ratio = 67.50%

Operating Income = Actual Sales - Variable Costs - Fixed Costs
Operating Income = $1,000,000 - $325,000 - $200,000
Operating Income = $475,000

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