Question

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Super Gutter sells pipes for $11 each. The unit variable costs per pipe are $8.00. Fixed...

Super Gutter sells pipes for $11 each. The unit variable costs per pipe are $8.00. Fixed costs total $4,820.
Required:
7. What is the contribution margin per pipe?
8. What is the break-even point in dollars?
9. How many pipes must be sold to earn a pre-tax income of $5,000?
10. What is the margin of safety assuming 1,800 pipes are sold?

Solutions

Expert Solution

Solution

Unit Selling Price $11
Unit Variable Cost $8
Contribution $3
Fixed Costs $4,820
7
Contribution Margin per Pipe is $3
8
Break Even Point in dollars
Fixed Costs / Contibution
$4820 / $3
1607 units
Break Even Point in dollars
1607 * $11
$17,677
9
Pipes to sold to earn $5000
Profit to be made $5,000
Add - Fixed Cost $4,820
Contribution in value (a) $9,820
Contibution Per unit (Given) (b) $3
Units to be sold for $5000 Profit (a/b) 3273
10
Margin of Safety assuming 1800 pipes are sold
Margin of Safety = Sales - Break even Sales
Break Even Units = 1607 (calculated in 8 point)
Margin of Saftey = 1800 - 1607
Margin of Saftey = 193 units
Margin of Saftey in value = 193 units*11 = $2123
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