Question

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

Number of canoes produced and sold		500		700		850
Total costs
Variable costs	$	92,500	$	129,500	$	157,250
Fixed costs	$	178,500	$	178,500	$	178,500
Total costs	$	271,000	$	308,000	$	335,750
Cost per unit
Variable cost per unit	$	185.00	$	185.00	$	185.00
Fixed cost per unit		357.00		255.00		210.00
Total cost per unit	$	542.00	$	440.00	$	395.00

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 1,560 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 $120,000 profit. (Round your answer to the nearest whole number.)

Answer 1

1.if selling price is $500.

contribution per unit = sale price - variable cost per unit =>$500 - $185 =>$315 per unit.

CM ratio = contribution per unit / sale price per unit

=>$315 / $500

=>0.63=>63%.

new break even point in units = fixed cost / contribution per unit

=>$178,500 / $315.

=>567units...(rounded to whole number).

new break even point in dollar sales = fixed cost / CM ratio

=>$178,500 / 0.63

=>$283,333....(rounded to whole number).

2.if 1560 canoes are sold:

margin of safety in dollars = actual sales - break even point sale in dollars

=>(1,560*$500) - $283,333

=>$780,000 - 283,333

=>$496,667.

margin of safety as a percentage = >(actual sales - break even sales)/ actual sales *100

=>($780,000 - 283,333) / $780,000 *100

$496,667 /780,000 *100

=>63.68%.

=>64%.....(rounded to whole number).

3.units to be sold to have a profit of $120,000

=> (profit + fixed cost) / contribution per unit

=>(120,000 + 178,500) / $315

=>$298,500 / $315

=>948 units.

948 units are to be sold for having a profit of $120,000.