Question

The year end income statement for Sophie Corporation is presented below:

Sophie Corporation Income Statement For the Year Ended December 31, 2019
Sales (600 units)		$36,000
Cost of Goods Sold
Labor	$9,000
Material	$10,800
Fixed Overhead	$1,800	$21,600
Gross Profit		$14,400
Administrative Expense
Fixed	$5,400
Variable	$3,600	$9,000
Operating Income		$5,400

Do not enter dollar signs or commas in the input boxes.
Round all answers to the nearest whole number.
For Unit calculations round your answers up to the nearest whole number.

a) Calculate the Contribution Margin and Operating Income for the year.
Contribution Margin: $Answer
Operating Income: $Answer

b) Calculate the contribution margin ratio.
Contribution Margin Ratio: Answer%

c) Calculate the break-even sales and break-even units.
Break-even units: Answer
Break-even sales: $Answer

d) Suppose the company would like to generate an operating profit of $5,000. Determine the revenue that is needed to obtain this target, and calculate the number of units that need to be produced to meet this goal.
Target units: Answer
Target sales: $Answer

e) Given the company's current yearly sales amount is $36,000, what is the margin of safety in dollars and in units?
Margin of Safety (units): Answer
Margin of Safety (Dollar): $Answer

  

Answer 1

All amounts are in $

(a)

Contribution margin = Total Sales - Total variable cost

= 36,000 - (10,800+9,000+3,600)

= 12,600

Operating income = 5,400 (already calculated in question)

(b)

Contribution margin ratio = Contribution margin/Total Sales

= 12,600/36,000 x 100

= 35%

(c)

Breakeven Sales = Fixed Cost/Contribution margin %

= (1,800+5,400)/35%

= 20,571.43

Sales price per unit = 36,000/600 = 60

Breakeven sales units = Breakeven Sales/ Sales price per unit

= 20,571.43/60

= 342.85 or 343 units

(d)

Desired profit = 5,000

Sales per unit = 60

Variable cost per unit = (10,800+9,000+3,600)/600 = 39

Contribution per unit = 21 (60 - 39)

So Extra Units to be Sold = Desired profit/Contribution per unit

= 5,000/21

= 238.09 or 238 units

(e)

Margin of Safety (%) = [(Current Sales - Breakeven Sales)/Current Sales ] x 100

= [ (36,000-20,571.43)/36,000 ] x 100

= 42.857%

Margin of safety (Amount) = Current Sales amount x 42.857%

= 15,428.57

Or Total Sales amount - Breakeven Sales amount

= 36,000 - 20,571.43

= 15,428.57

Margin of Safety Quantity = Total current level Sales quantity - Breakeven sales quantity

= 600 units - 343 units

= 257 units