Question

Victoria Company reports the following operating results for the month of April.

VICTORIA COMPANY CVP Income Statement For the Month Ended April 30, 2020
		Total		Per Unit
Sales (9,000 units)		$450,000		$50
Variable costs		225,000		25.00
Contribution margin		225,000		$25.00
Fixed expenses		174,900
Net income		$50,100

Management is considering the following course of action to increase net income: Reduce the selling price by 6%, with no changes to unit variable costs or fixed costs. Management is confident that this change will increase unit sales by 20%.

Using the contribution margin technique, compute the break-even point in units and dollars and margin of safety in dollars: (Round intermediate calculations to 4 decimal places e.g. 0.2522 and final answer to 0 decimal places, e.g. 2,510.)

(a) Assuming no changes to selling price or costs.

Break-even point		6996	units
Break-even point		$ 349800
Margin of safety		$ 100200

(b1) Assuming changes to sales price and volume as described above.

Break-even point			units
Break-even point		$
Margin of safety		$

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Answer 1

(a) Assuming no change :

Break even poitns (units) = Fixed Expenses/Contribution per unit = 174,900/25 = 6,996 units

Break even poitns ($) = 6,996 * 50 = $ 349,800

Margin of Safety Sales = Total Sales - Breakeven SaLES = 450,000 - 349,800 = 100,200

(B) Assuming changes

  

Revised selling prices	47
(50*94%)
Revised Sales (units)	10800
(9000*1.2)
Revised Contribution =	47 -25 =	22
Break even poitns (units) = Fixed Expenses/Contribution per unit = 174,900/22 = 7,950 units
Break even poitns ($) = 7,950 * 47 = $ 373,650
Margin of Safety Sales = Total Sales - Breakeven SaLES
Total Sales
(10,800 * $ 47)	5,07,600
Break even sales	3,73,650
Margin of safety sales	1,33,950