In: Accounting
Zebra Company manufactures custom-designed skins (covers) for iPods® and other portable MP3 devices. Variable costs are $12.00 per custom skin, the price is $20, and fixed costs are $144,800. Required:
1.What is the contribution margin for one custom skin? Round your answer to the nearest cent. $ per custom skin
2. How many custom skins must Zebra Company sell to break even? custom skins
3. If Zebra Company sells 19,000 custom skins, what is the operating income? $
4. Calculate the margin of safety in units and in sales revenue if 19,000 custom skins are sold. Margin of safety in units units Margin of safety in sales revenue $
Variable cost = $12
Sale price = $20
Fixed cost = $144,800
1.
Contribution margin for one custom skin = Sales price - Variable cost
= 20-12
= 8 per custom skin
2.
Break even sales in units = Fixed costs/Contribution margin
= 144,800/8
= 18,100 custom skins
3.
Income Statement | |
Sales (19,000 x 20) | 380,000 |
Variable cost (19,000 x 12) | 228,000 |
Contribution margin | $152,000 |
Fixed costs | -144,800 |
Net operating income | $7,200 |
the operating income is $7,200, if Zebra Company sells 19,000 custom skins
4.
Contribution margin for one custom skin = Sales price - Variable cost
= 20-12
= 8 per custom skin
Contribution margin ratio = Contribution margin for one custom skin/ Sales price
= 8/20
= 40%
Break even sales in units = Fixed costs/Contribution margin
= 144,800/8
= 18,100 custom skins
Break even sales in dollars = Fixed costs/Contribution margin ratio
= 144,800/40%
= $362,000
Margin of safety in units = Actual units - Break even units
=19,000- 18,100
= 900 units
Actual sales = Sales units x Sales price per skin
= 19,000 x 20
= 380,000
Margin of safety in dollars = Actual sales - Break even sales in dollars
= 380,000-362,000
= $18,000
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