# CVP Example - Break-even point in dollars using the...

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Brother Enterprises sells radios. For the year, it revenues and costs were as follows: Sales: \$550,000 (11,000 units) Variable costs: \$330,000 Fixed costs: \$150,000 Required: Compute the following: (a) Contribution margin per unit (b) Contribution margin ratio (c) Break-even point in dollars using the contribution margin ratio (d) Break-even point in units using the unit contribution margin (e) Margin of safety (% and dollars) (f) Number of units that must be sold to earn net income of \$100,000

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Solution: Given Information Per unit (calculated) Ratio (calculated) Sales (11,000 units) \$ 550,000 \$ 50 100% (Variable Costs (11,000 units)) \$ (330,000) \$ (30) -60% Contribution Margin \$ 220,000 \$ 20 40% (Fixed Costs) \$ (150,000) Operating Income \$ 70,000 (a) Contribution margin per unit: \$20 (b) Contribution margin ratio: 40% (c)
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Unformatted text preview: Break-even point in dollars using the contribution margin ratio: Fixed costs / CM ratio \$150,000 / 40% = \$375,000 (d) Break-even point in units using the unit contribution margin: Fixed costs / CM per unit \$150,000 / \$20 = 7,500 units (e) Margin of safety (% and dollars): Sales (Sales @ Breakeven) / Sales \$550,000 (\$375,000) / \$550,000 \$175,000 / \$550,000 = 32% (sales can drop before it affects operating income) = \$175,000 (sales can drop before it affects operating income) (f) Number of units that must be sold to earn net income of \$100,000 Fixed costs + Target Profit / CM per unit \$150,000 + \$100,000 / \$20 = 12,500 units Proof below: Sales (12,500 units) \$ 625,000 (Variable Costs (12,500 units)) \$ (375,000) Contribution Margin \$ 250,000 (Fixed Costs) \$ (150,000) Operating Income \$ 100,000...
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## This note was uploaded on 10/26/2009 for the course ACTP 5004 taught by Professor Montesarchio during the Summer '08 term at Nova Southeastern University.

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CVP Example - Break-even point in dollars using the...

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