Question

The information given in the below table pertains to Brigham Company for last month. 50,000 units are sold for $220 per unit. The fixed expenses are $3,000,000 per month, and the variable expenses per unit include the items given in the below table.

Item:                                                                             Amount

Direct Materials $60 per unit

Direct Labor                                                                $35 per unit

Variable Manufacturing Overhead $25 per unit

Variable Selling and Administrative Expenses $20 per unit

16. What is the unit contribution margin?

$80 per unit

$125 per unit

$140 per unit

$175 per unit

None of the above

17. What is the break-even point in dollar sales?

$3,000,000

$4,000,000

$8,250,000

$11,000,000

None of the above

18. What is the net operating income for last month?

$1,000,000

$4,000,000

$8,000,000

$8,250,000

None of the above

19. What is the company’s margin of safety in percentage terms?

25%

33.33%

36.36%

75%

None of the above

20. What is the number of units that should be sold to earn a target profit of $1,500,000?

18,750 units

37,500 units

50,000 units

56,250 units

None of the above

                                                              

Answer 1

16) unit contribution margin

contribution margin = sales - variable cost

= $220 - ($60+$35+$25+$20) (refern note below)

= $80 per unit

17) Break even point in dollars

Break even point

= Fixed cost/contribution per unit

= $3,000,000/$80

=37500 units

Break even point in dollars

= Number of units × selling price per unit

=37500 ×$220

=$8,250,000

18) net operating income

Particulars	Amount
Sales (50000×$220)	$11,000,000
Less: Variable cost 50000 × ($60+$35+$25+$20) Refer note below	$7,000,000
Less : Fixed cost	$3,000,000
Net income	$1,000,000

19) margin of safety in percentage terms

Margin of safety

=(Current sales-break even sales)/current sales×100

= $11,000,000 - $8,250,000/11,000,000×100

= 25%

20) number of units to be sold to earn a profit of

$1,500,000

Sales (in units)

= Fixed cost + profit/contribution per unit

= $3,000,000 + $1,500,000/$80

= 56250 units.

Note:

Variable cost

= Direct materials + direct labour + variable manufacturing overhead + variable selling and administrative expenses

= $60+$35+$25+$20

= $140 per unit.