Question

Moorcroft Company plans to sell 3,000 candy bars with the following information:

                 Financial Information                                                                   

         Selling price per candy bar.......................................................................$1.00

         Variable cost of goods sold per candy bar.................................................$.40

         Fixed manufacturing cost per year............................................................. $12,000

Variable cost of goods sold per candy bar.................................................$.30

         Variable selling and administrative expense per candy bar.........................$.05

         Fixed selling and administrative expense..................................................$ 4,000

Instructions: Prepare the following

1. CVP formatted income statement
2. Break even point in units
3. Break even point in dollars
4. Margin of safety in dollars
5. Margin of safety ratio

Answer 1

1.CVP formatted income statement

2.Break even point in units=Fixed costs/Contribution margin per unit

Break even point(BEP) in units=16,000/0.25

Break even point(BEP) in units=64,000

3.Break even point (BEP)in dollars=BEP in units*Selling price per unit

Break even point(BEP) in dollars=64,000*1

Break even point (BEP) in dollars=$64,000

4.Margin of safety in dollars=Actual sales-Break even sales

Margin of safety in dollars=$3,000-$64,000

Margin of safety in dollars=-$61,000

5.Margin of safety ratio=Margin of safety/Actual sales

Margin of safety ratio=-$61,000/$3,000

Margin of safety ratio=-20.33%