Question

In the month of June, Jose Hebert’s Beauty Salon gave  4,400 haircuts, shampoos, and permanents at an average price of $ 40. During the month, fixed costs were $ 16,800 and variable costs were 75% of sales.

Determine the contribution margin in dollars, per unit and as a ratio. (Round contribution margin per unit and contribution margin ratio to 2 decimal places, e.g. 5.25 & 10.50.)

Contribution margin		$
Contribution margin per unit		$
Contribution margin ratio			%

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Using the contribution margin technique, compute the break-even point in dollars and in units. (Round answers to 0 decimal places, e.g. 1,225.)

Break-even point		$
Break-even point			units

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Compute the margin of safety in dollars and as a ratio. (Round answers to 0 decimal places, e.g. 1,225.)

Margin of safety		$
Margin of safety ratio			%

Answer 1

A1.

Sales (4,400*$40)	$ 176,000
Less: Variable cost $176,000*75%)	$ 132,000
Contribution Margin	$    44,000

a2.

Selling price per unit	$ 40
Less: Selling price per unit ($40*75%)	$ 30
Contribution margin per unit	$ 10

a3.

Contribution margin ratio = Contribution margin / Sales

Contribution margin ratio = $44,000 / $176,000

Contribution margin ratio = 25%

b1.

Break Even Sales in Dollars = Total fixed costs / Contribution margin

Break Even Sales in Dollars = $16,800 / $25%

Break Even Sales in Dollars = $67,200

b2.

Breakeven point in units = Break even point in dollars / Unit selling price

Breakeven point in units = $67,200 / $40

Breakeven point in units = 1,680

c1.

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

Margin of safety = $176,000 - $67,200

Margin of safety = $108,800

c2

Margin of safety ratio = Margin of safety / total sales

Margin of safety ratio = $108,800 / $176,000

Margin of safety ratio = 62%

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