Question

Break-Even Units, Contribution Margin Ratio, Margin of Safety

Khumbu Company's projected profit for the coming year is as follows:

	Total			Per Unit
Sales	$3,054,500			$41.00
Total variable cost	1,466,160			19.68
Contribution margin	$ 1,588,340			$ 21.32
Total fixed cost	1,378,190
Operating income	$ 210,150

Required:

1. Compute the break-even point in units. If required, round your answer to nearest whole value.
units

2. How many units must be sold to earn a profit of $240,000? If required, round your answer to nearest whole value.
units

3. Compute the contribution margin ratio. If required, round your answer to nearest whole number.
%

Using the rounded ratio from above, compute the additional profit that Khumbu would earn if sales were $160,000 more than expected.
$

4. For the projected level of sales, compute the margin of safety in units.
units

Answer 1

	Total Sales	$30,54,500
	Units sold($3,054,500 / $41)	74500	units
	Sales per unit	$41.00
Less	Variable cost per unit	$19.68
	Contribution margin per unit(a)	$21.32
	Contribution margin	$15,88,340
Less	Fixed Cost(b)	$13,78,190
	Operating income	$2,10,150
1	Break even point in units(b/a)	64643	units
2	Required Income	$2,40,000
	Add:Fixed cost	$13,78,190
	Required Contribution(a)	$16,18,190
	Contribution margin per unit(b)	$21.32
	Required sales(a/b)	75900	units
3	Contribution margin Ratio($21.32/$41)	52.00%
	Revised Sales	$32,14,500
	Required contribution($3,214,500*52%)	$16,71,540
	Less:Fixed expenses	$13,78,190
	Revised Operating income	$2,93,350
	Additional Profit($293,350 - $210,510)	$83,200
4	Margin of safety(74,500 - 64,643)	9,857	units