In the month of June, Bedford Company sold 350 widgets. The average sales price
ID: 2595975 • Letter: I
Question
In the month of June, Bedford Company sold 350 widgets. The average sales price was $34. During the month, fixed costs were $6,320 and variable costs were 40% of sales.
Instructions
A. Determine the contribution margin in dollars, per unit, and as a ratio.
B. Compute the break-even point in units and dollars.
C. How much can sales decline before Bedford Company experiences a loss? (hint: compute margin of safety)
D. What would be the sales dollars and number of units sold if Bedford Company
wishes to have a target profit of $4,000.
Explanation / Answer
Contribution Margin in dollars= Sales- Variable Cost
=Sales in units(Selling Price- Variable Cost per unit)
=350 x ($34- $34 x 40%)
=350 x $34 x 60%
=350 x $20.40
=$7,140
Contribution margin per unit= Selling Price – Variable Cost per Unit
=$34-$34 x 40%
=34 x 60%
=$20.40
Contribution margin ratio = Contribution per unit/ Selling Price per unit x 100
=$20.40/$34.00 x 100
=60%
Break even point in units= Fixed Cost / Contribution Per unit
=$6,320/$20.40
=$6,320/$20.40
=309.81 or 310 units
Break even point in dollars = Break even point units x Selling price
=310 x $34
=$10,540
Margin of Safety = Total Sales -Break even sales
=(350 x $34)- (310 x $34)
=40 x $34
=$1,360
D. What would be the sales dollars and number of units sold if Bedford Company
wishes to have a target profit of $4,000.
Target sales in units=Target Profit+ Fixed Cost / Contribution margin per unit
=$4,000+$6,320/$20.40
=$10,320/$20.40
=505.88 or 506 units
Target sales in dollar =506 x $34=$17,204
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