Question

Sandy Bank, Inc., makes one model of wooden canoe. And, the information for it follows:

Number of canoes produced and sold		450		650		800
Total costs
Variable costs	$	72,000	$	104,000	$	128,000
Fixed costs	$	187,200	$	187,200	$	187,200
Total costs	$	259,200	$	291,200	$	315,200
Cost per unit
Variable cost per unit	$	160.00	$	160.00	$	160.00
Fixed cost per unit		416.00		288.00		234.00
Total cost per unit	$	576.00	$	448.00	$	394.00

Required:
1. Suppose that Sandy Bank raises its selling price to $500 per canoe. Calculate its new break-even point in units and in sales dollars. (Do not round intermediate calculations. Round your final answers to nearest whole number.)



2. If Sandy Bank sells 1,510 canoes, compute its margin of safety in dollars and as a percentage of sales. (Use the new sales price of $500.) (Round your answers to the nearest whole number.)



3. Calculate the number of canoes that Sandy Bank must sell at $500 each to generate $110,000 profit. (Round your answer to the nearest whole number.)

Answer 1

Requirement 1

A	Fixed Expenses	$ 187,200.00
B	Selling Price per unit	$          500.00	per unit
C	Variable expenses per unit	$          160.00	per unit
D= B - C	Contribution margin per unit	$          340.00	per unit
E = D/B	CM ratio	68%
F = C/B	Variable Expense ratio	32%
G = A/D	Break Even in Unit Sales	551
H = I x $500	Break Even in Dollar Sales	$        275,294

Breakeven point in units=551 units

Breakeven point in sales dollars=$275294 or $ 275500

Requirement 2

A=$500 x 1510	Total Sales	$           755,000.00
B	Break Even in Dollar Sales	$           275,500.00
C=A-B	Margin of Safety in dollars	$           479,500.00
D=C/A	Margin of Safety in %	62%

Please also try 64% taking the breakeven sales as $275294.

Requirement 3

A	Fixed cost	$ 187,200.00
B	Add: Required profit	$ 110,000.00
C=A+B	Total Contribution needed	$ 297,200.00
D	Contribution per unit	$           340.00
E=C/D	Units to be sold	874

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