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

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