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Contribution Margin, CVP, Net Income, Margin of Safety Nail Glow, Inc., produces novelty nail polishes. Each...

Contribution Margin, CVP, Net Income, Margin of Safety

Nail Glow, Inc., produces novelty nail polishes. Each bottle sells for $5.90. Variable unit costs are as follows:

Acrylic base $0.86 Bottle, packing material $1.15
Pigments 0.57 Selling commission 0.14
Other ingredients 0.43

Fixed overhead costs are $34,475 per year. Fixed selling and administrative costs are $6,720 per year. Nail Glow sold 35,000 bottles last year.

Required:

1. What is the contribution margin per unit for a bottle of nail polish? Round your answer to the nearest cent.
$ per unit

What is the contribution margin ratio? Round your answer to four decimal places. Use the rounded value in the subsequent computations. (Express as a decimal-based amount rather than a whole percent.)

2. How many bottles must be sold to break even?
bottles

What is the break-even sales revenue? Round your answer to the nearest dollar, if rounding is required. Use the rounded value in the subsequent computations.
$

3. What was Nail Glow’s operating income last year?
$

4. What was the margin of safety in revenue?
$

5. Suppose that Nail Glow, Inc., raises the price to $6.50 per bottle, but anticipated sales will drop to 28,750 bottles. What will the new break-even point in units be? Round your answer to the nearest whole number of units.
bottles

Solutions

Expert Solution

ans 1
Selling price S 5.9
Less: variable expenses
Acrylic base 0.86
Pigments 0.57
Other ingredients 0.43
Bottle, packing material 1.15
Selling commission 0.14 3.15
Contribution margin C $2.75 per unit
Contribution margin ratio
C/S
2.75/5.9 0.4661
ans 2
Break even in units
Fixed Cost/CM per unit
41195/2.75 14980 units
Fixed cost 34475+6720 41195
Breakeven in $
41195/.4661 $88382
ans 3
Operating income
Sales (35000*5.9) 206500
Less: variable cost (35000*3.15) 110250
Contribution margin 96250
Less: fixed cost 41195
Net operating Income $55055
ans 4
Margin of safety $118118
Budgeted sales-Breakeven sales
206500-88382
ans 5
Break even in units 12297
Fixed Cost/CM per unit
41195/(6.5-3.15)
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ekkarill92 answered 2 years ago
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