Question

Crane Bucket Co., a manufacturer of rain barrels, had the following data for 2019.

Sales		2,040	units
Sales price		$40	per unit
Variable costs		$22	per unit
Fixed costs		$18,360

(a)

What is the contribution margin ratio?

Contribution margin ratio

%

(b)

What is the break-even point in dollars?

Break-even point

$

(c)

What is the margin of safety in dollars and as a ratio?

Margin of safety		$
Margin of safety ratio			%

(d)

If the company wishes to increase its total dollar contribution margin by 30% in 2020, by how much will it need to increase its sales if selling price per unit, variable price per unit and total fixed costs remain constant?

Total increase in sales required:

$

Answer 1

Solution :

(a) Contribution Margin Ratio :

Sales per Unit = $ 40

Less : Variable Cost per Unit = $ 22

Contribution per Unit = $ 18

Contribution Margin Ratio = Contribution per Unit / Sales Per Unit

= $ 18 / $ 40

= 45%

(b) Breakeven Sales in Dollars :

Breakeven Sales = Fixed Cost / Contribution Margin Ratio

= $ 18,360 / 0.45

= $ 40,800

(c) Margin of Safety in Dollars and as a Ratio :

Margin of Safety in Dollars = Total Sales - Breakeven Sales

= [ 2,040 * $ 40 ] - $ 40,800

= $ 81,600 - $ 40,800

Margin of Safety in Dollars   = $ 40,800

Marging of Safety Ratio = Margin of Safety Sales / Total Sales

= $ 40,800 / $ 81,600

MOS Ratio = 50%

(d) Increse in Sales $

Current Contribution = 2,040 * $ 18

= $ 36,720

Increment Required in Contribution = $ 36,720 * 0.30

= $ 11,016

Increment Required in Sales = $ 11,016 / 0.45

=$ 24,480

Total Increse in sales required = $ 24,480.

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