Below are figures pulled from an income statement for Company ABC Sales: $590,00

Question

Below are figures pulled from an income statement for Company ABC

Sales:                      $590,000

Variable costs: $369,340

Fixed costs:         $140,000

Units sold:               23,600

Based on this data calculate the following (Round to the nearest cent) :

a.     What is the contribution margin?

b.     What is the contribution margin per unit?

c.     What is break-even in dollars?

d.     What is break-even in units?

e.     What is the margin of safety in dollars?

f.      Assuming fixed costs remain at the current cost, how many units before Company XYZ will have a before tax profit of $ 100,000?

g.     Assuming fixed costs remain at the current cost, sales price per unit does not change and variable cost per unit does not change, how much profit before tax will be produced if sales in the coming year increase by 5%?

Below are figures pulled from an income statement for Company ABC Based on this data calculate the following (Round to the nearest cent) : What is the contribution margin? What is the contribution margin per unit? What is break-even in dollars? What is break-even in units? What is the margin of safety in dollars? Assuming fixed costs remain at the current cost, how many units before Company XYZ will have a before tax profit of $ 100,000? Assuming fixed costs remain at the current cost, sales price per unit does not change and variable cost per unit does not change, how much profit before tax will be produced if sales in the coming year increase by 5%?

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Contribution Margin = Sales - Variable Cost = 590000 - 369340 = 220660

Part B:

Contribution Margin Per Unit = Contribution Margin/Units Sold = 220660/23600 = 9.35

Part C:

Selling Price Per Unit = 590000/23600 = 25

Break Even (Dollars) = Fixed Cost/Contribution Margin Per Unit*Selling Price Per Unit = 140000/9.35*25 = 374331.55 or 374332

Part D:

Break Even Point (Units) = Fixed Cost/Contribution Margin Per Unit = 140000/9.35 = 14973.26 or 14973 units

Part E

Margin of Safety (Dollars) = Sales - Break Even Sales = 590000 - 374331.55 = 215668.45 or 215668

Part F

Sales (Units) = (Fixed Cost + Profit)/Contribution Per Unit = (140000 + 100000)/9.35 = 25668.45 or 25668 units

Part G:

Sales (23600*1.05%*25) = 619500

Less Variable Cost (23600*1.05%*15.65) = 387807

Contribution = 231693

Less Fixed Cost = 140000

Profit = 91693

Profit = 91693

Thanks.

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