Breakeven point & Margin of safety

 

1.

  Last month when Harrison Creations, Inc., sold 40,000 units, total sales were $300,000, total variable expenses were $240,000, and fixed expenses were $45,000.

   

  

a.

b.

Estimate the change in the company’s net operating income if it were to increase its total sales by $1,500.

Required:

What is the company’s contribution margin (CM) ratio?

    

 

                                                

2.      [The following information applies to the questions displayed below.]

Maxson Products distributes a single product, a woven basket whose selling price is $8 and whose variable cost is $6 per unit. The company’s monthly fixed expense is $5,500.Required:a.Compute for the company’s break-even point in unit sales using the equation method.b. Compute for the company’s break-even point in sales dollars using the equation method and the CM ratio. (Do not round intermediate calculations. Round your CM ratio to 2 decimal places.) CM ratio______________________ Break-even point in dollar sales________________________________    

 

   

4.     Mohan Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning next month’s budget appear below:

 

   

 per unit

  Selling price

$25

 per unit

  Variable expenses

$15

  Fixed expenses

$8,500

 per month

  Unit sales

1,000

 units per month

 

Required:

a.

Compute the company’s margin of safety.

b. Compute the company’s margin of safety as a percentage of its sales. (%)

       

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