The Bruggs & Strutton Company manufactures an engine for carpet cleaners called
ID: 2587722 • Letter: T
Question
The Bruggs & Strutton Company manufactures an engine for carpet cleaners called the "Snooper." Budgeted cost and revenue data for the "Snooper" are given below, based on sales of 40,000 units.
Sales
$3,000,000
Less: Cost of goods sold
1,600,000
Gross margin
$ 1,400,000
Less: Operating expenses
400,000
Net income
$ 1,000,000
Cost of goods sold consists of $1,200,000 of variable costs and $400,000 of fixed costs. Operating expenses consist of $200,000 of variable costs and $200,000 of fixed costs.
Required:
Calculate the total variable costs.
Calculate the total fixed costs.
Calculate the break-even point in units and sales dollars.
Calculate the safety margin.
Calculate the Contribution Margin Ratio.
Sales
$3,000,000
Less: Cost of goods sold
1,600,000
Gross margin
$ 1,400,000
Less: Operating expenses
400,000
Net income
$ 1,000,000
Explanation / Answer
Total variable cost = (1200000+200000) = 1400000
Total Fixed cost = (400000+200000) = 600000
Contribution margin per unit = (3000000-1400000)/40000=40 per unit
Break even point in unit = FIxed cost/contribution margin per unit
= 600000/40
Break even point in unit = 15000 unit
Break even sales dollars = 15000*75 = 1125000
Safety margin = (40000-15000) = 25000 unit
Contribution margin ratio = 1600000*100/3000000 = 53.33%
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