Question

1. The Sirap Co. sells a product for $75 per unit. The variable cost is $45 per unit.The fixed costs are $48000.   Required: Find the Break - Even point in Sales Units and in Dollars.
2. The Sirap Co. has sales of $550,000 and the Break - Even point in sales dollars is $385,000. Determine the company's margin of safety in sales dollars and as a percent of current sales
3. Question B change the sales price to $15 per unit. Now also find the Margin of Safety in Units. (Hint it is Margin of Safety in Dollars divided by the Sales Price per Unit.)

Answer 1

Solution :-

A.) Calculation of Break-Even Point in sales Units and in Dollars :-

Break Even Point ( In Units ) = Fixed Costs / Contribution Per Unit

Selling Price per Unit = $ 75 Per Unit

Variable Cost Per unit = $ 45 Per Unit

Contribution Per Unit = $ 30 Per Unit

Fixed Costs = $ 48000

Therefore, Break Even Point ( In Units ) = $48000/ $ 30 per unit = 1600 Units

Break Even Point ( In Dollars ) = Fixed Costs / Contribution Margin Ratio

Contribution Margin Ratio = Contribution Margin / Selling Price per unit X 100

= $ 30 / $ 75 *100 = 40 %

Break Even Point ( In Dollars ) = $ 48000 / 40 % = $ 120000

B.) Calculation of Company's Margin of Safety in sales dollars and as a percent of current sales :-

Margin of safety (in sales dollars) = Current sales – Breakeven sales

Current Sales = $ 550000

Breakeven Sales = $ 385000

Therefore, Margin of safety (in sales dollars) = $ 550000 - $ 385000 = $ 165000

Margin of safety as a percent of current sales = (Current sales level – breakeven point) / Current sales level X 100

= ( $ 550000 - $ 385000) / $ 550000 * 100 = 30 %

C.) Calculation of Company's Margin of Safety in units :-

Margin of Safety in units = Margin of safety (in Dollars ) / Selling Price per Unit

Selling Price per Unit = $ 15 Per Unit

Margin of safety (in sales dollars) = $ 165000

Margin of Safety in units = $ 165000 / $ 15 per Unit = 11000 Units