Question

Dolphin Swimming Pools sells and installs above ground swimming pools as well as pool accessories. For the current year, they estimate that they would sell and install 200 pools at $5,000 each. Each pool costs Dolphin $4,400 in materials and installation costs. They also expect to sell $800,000 in Accessories. Accessories generate a margin of 30%. Fixed costs (such as the showroom and administration) are $200,000.

Required

1. Calculate the Break Even Point in number of swimming pools (assuming that the mix of pools and accessories remains constant).
2. Calculate the number of pools that need to be sold to generate a profit of $200,000 (assuming that the mix of pools and accessories remains constant).
3. What is the estimated Margin of Safety (in number of pools) for the current year.
4. At the end of the year, they only sold 150 pools. Budgeted margins, fixed costs and selling prices were the same as actuals margins, fixed costs and selling prices, yet a profit of $200,000 was made.   How was this possible? Show your calculations.

Answer 1

	sales per unit	9,000.00	(5000+800000/200)
less	variable cost	7,200.00	(4400+4000*.70)
	contribution per unit	1,800.00
1	break even point(BEP)=fixed cost/contribution per unit
	bep	200000/1800	111	pools approximately
2	number of pools that need to be sold to generate a profit of $ 200000=(fixed cost+required profit)/contribution per unit
		(200000+200000)/1800
		222.00	pools approximately
3	margin of safety=actual sales in units-break even sales in units
		200-111	89	pools
4	sales	13,50,000.00	(150*5000)+(800000/200*150)
less	variable cost	?
	contribution	?
	fixed cost	2,00,000.00
	profit	2,00,000.00
	contribution=fixed cost +profit	200000+200000=400000
	variable cost=sales-contribution=1350000-400000=950000