Sales price per unit for product X is $90. The variable costs per unit and total...

Sales price per unit for product X is $90. The variable costs per unit and total fixed costs are as follows:

Variable costs per unit: Fixed costs:

Machining $25 Depreciation $ 40,000

Packaging 15 Maintenance 31,000

Total variable $40 Cleaning 9,000

Real estate tax 5,000

Total fixed $85,000

Using Contribution Margin technique, calculate Sales Revenue and Sales Units at Break-Even point.

(b) If the current level of sales is 2,300 units, by what percentage can sales decrease before the company has to worry about having a net loss?

Expert Solution

	Cost Data gvien
	Sales price		90

	Variable Cost
	Machine	25
	Packaging	15
	Less :Total Variable cost		40

	Contribution margin		50

	Contributiuon Margin %		55.56



	TOTAL Fixed cost

	Depreciation		40000
	Maintianence		31000
	Cleaning		9000
	Real Estate Tax		5000

	Total Fixed Cost		85000


	Break even Sales	Total Fixed cost Divided by Contribution margin %

	Here Fixed cost given is $85000
	Contribution Margin % 55.56	85000/55.56%	153000


	Break even units	Total Fixed cost Divided by Contribution margin

	Here Fixed cost given is $85000
	Contribution Margin 50		85000/50	1700	units


B)	For this we have to find out Margin of safety

	Margin of safety =	current sales - break even sales /current sales

	Current sales =	2300
	Curent sale price	90
	Current sales value	207000


	So current sale - break even sale

	207000-153000	54000

	now divide that with current sales

		54000/207000	26%

	Thus current sales can decrease 26% before making loss

ekkarill92 answered 1 year ago

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