Exercise 11-19 Margin of safety LO 11-6 Information concerning a product produce
ID: 2582195 • Letter: E
Question
Exercise 11-19 Margin of safety LO 11-6
Information concerning a product produced by Ender Company appears here:
Required
Determine the following:
Contribution margin per unit.
Number of units that Ender must sell to break even.
Sales level in units that Ender must reach to earn a profit of $222,500.
Determine the margin of safety in units, sales dollars, and as a percentage. (Round “Percentage” answer to 1 decimal place (i.e., 0.234 should be entered as 23.4).)
Sales price per unit $ 167 Variable cost per unit $ 78 Total annual fixed manufacturing and operating costs $ 623,000Explanation / Answer
Contribution margin per unit= Sales Price Per Unit - Variable Cost Per Unit
= $ 167 - $ 78
= $ 89
Number of units that Ender must sell to break even = Fixed Costs / Contribution margin per unit
= $ 623,000 / $ 89
= 7,000 Units
Required Profit = $ 222,500
Add: Fixed Cost = $ 623,000
Hence, Required Contribution = $ 845,500
Contribution margin per unit = $ 89
Hence, Units Sold = Required Contribution /Contribution margin per unit
= $ 845,500 / $89
= 9,500 Units
margin of safety (Units) = Actual Sales - Break Even Sales
= 9,500 - 7,000
= 2,500 Units
margin of safety (Sales Dollar) =Actual Sales - Break Even Sales
= ($ 167 * 9,500 Units) - ($ 167 *7,000 Units)
= $ 417,500
margin of safety (as a percentage) = (Actual Sales - Break Even Sales)/ Actual Sales*100
= $ 417,500 / $ 1,586,500*100
= 26.3%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.