Question

Campbell Company makes and sells products with variable costs of $24 each. Campbell incurs annual fixed costs of $340,360. The current sales price is $91.

Note: The requirements of this question are interdependent. For example, the $268,000 desired to profit introduced in Requirement C also applies to subsequent requirements. Likewise, the $80 sales price introduced in requirement D applies to the subsequent requirements.

f) If variable cost rises to $30 per unit, what level of sales is required to earn the desired profit? Express your answer in units and dollars. Prepare an income statement using the contribution margin format.

g) Assume that Campbell concludes that it can sell 10,800 units of product for $80 each. Recall that variable costs are $30 each and fixed costs are $288,000. Compute the margin of safety in units and dollars and as a percentage.

Answer 1

Information Given
Sale Price	$91
Variable cost	$24
Fixed Cost	$340,360
A) Calculate Sales to earn desired profit of $ 268,000 and VC increase to $30
		Amount $
Sale Price	91
Less : Variable Cost	30
Contribution	61
Contribution Margin Ratio	Contribution /sales *100
			61/91*100
			67%
Contribution		Fixed Cost +Desired Profit
			$340,360+$268,000
			6,08,360
Sales			Contribution/Contribution margin ratio
			608360/67%
Required Sales		9,08,000
Income Statement
			Amount $	Per Unit
Sales			908000	91
Less : Variable Cost		299640	30
Contribution		608360	61
Less : Fixed Cost		340360
Profit			268000
B) Margin Of Safety
No. of Units 10,800
		Per Unit	Amount $
Sales		80	8,64,000
Less : Variable Cost	30	3,24,000
Contribution	50	5,40,000
Less : Fixed Cost		2,88,000
Profit			2,52,000
BEP			FC/Contribution (pu)
			288,000/50
BEP ( In units)		5760
BEP (in $)			5760*80
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