Question

managirial accounting

Julia Child Company sells baby car seats to retailers for an average of $90 each. The variable cost of each car seat is $51 and monthly fixed selling costs total $8,000. Other monthly fixed costs of the company total $7,500

Required:

7. What is the breakeven point in number of car seats?

8. What is the margin of safety, assuming sales total $38,000?

9. What is the breakeven level in car seats, assuming variable costs increase by 20%?

10. What is the breakeven level in car seats, assuming the selling price goes up by 10%, fixed selling costs decline by 10%, and other fixed costs decline by $1,000?

Answer 1

Req 1.
Unit contribution
Selling price per unit		90
Less: Variable cost		51
Unit contribution		39
Break even units:
Total fixed cost (8000+7500)	15500
Divide: Unit contribution	39
Break even units:		397	units
Req 2.
CM ratio:
Unit contribution		39
Divide: Selling price		90
CM ratio:			43.33%
Break even sales:
Fixed cost			15500
Divide: CM ratio		43.33%
Break even sales:		35772
Margin of safety:
Total sales		38000
Less: Break even sales	35772
Margin of safety:		2228
Req 3.
Revised Unit contribution = 39 - 20% of 51 = 28.80 per unit
Break even units:
Total fixed cost (8000+7500)	15500
Divide: Revised Unit contribution	28.8
Break even units:		538	units
Req 4.
Revised selling price (90+10%)	99
Less: Variable cost		51
Unit contribution		48
Break even units:
Revised fixed selling cost (8000-10%)	7200
Revised other fixed cost (7500-1000)	6500
Revised fixed cost			13700
Divide: Revised unit contribution	48
Break even units:			285