Question

1A. If Canace Company, with a break-even point at $489,800 of sales, has actual sales of $620,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? Round the percentage to the nearest whole number.

1. $

2.   %

b. If the margin of safety for Canace Company was 30%, fixed costs were $1,656,900, and variable costs were 70% of sales, what was the amount of actual sales (dollars)?
(Hint: Determine the break-even in sales dollars first.)
$

1B. Dragon Sports Inc. manufactures and sells two products, baseball bats and baseball gloves. The fixed costs are $496,000, and the sales mix is 80% bats and 20% gloves. The unit selling price and the unit variable cost for each product are as follows:

Products	Unit Selling Price		Unit Variable Cost
Bats	$80		$60
Gloves	200		120

a. Compute the break-even sales (units) for the overall enterprise product, E.
units

b. How many units of each product, baseball bats and baseball gloves, would be sold at the break-even point?

Baseball bats	units
Baseball gloves	units

Answer 1

Answer 1.

Margin of safety in dollars = Actual sales - Break even sales

= $620,000 - $489,800 = $130,200

Margin of safety as a percentage of sales = $130,200 / $620,000 = 21 %

Answer 2 b.

Variable cost = 70 % ; Thus contribution margin = 30 %

Break even sales in dollars = Fixed costs / Contribution margin

= $1,656,900 / 30 % = $5,523,000

Now let the actual sales be $X . We can form the following equation using Margin of safety as a percentage of sales formula:

( X - 5,523,000) / X = 0.30

0.7 X = 5,523,000

X = $7,890,000

The required amount of actual sales =  $7,890,000

Answer 1 B. a

Contribution per unit for Bats = $80 - $60 = $20

Contribution per unit for Gloves = $200 - $120 = $80

Combined Contribution per unit for for the company = ($20 * 80 %) + ($80 * 20 %) = $32.

Break-even sales (units) for the overall enterprise = Fixed costs / Contribution per unit

= $496,000 / $32 = 15,500 units

Answer 1 B. b. Break-even sales (units) for each product

Baseball bats	15,500 units * 80 %	12,400 units
Baseball gloves	15,500 units * 20 %	3,100 units