Question

	Estimated Fixed Cost	Estimated Variable Cost (per unit sold)
2	Production costs:
3	Direct materials	—	$56.00
4	Direct labor	—	34.00
5	Factory overhead	$188,000.00	20.00
6	Selling expenses:
7	Sales salaries and commissions	102,000.00	6.00
8	Advertising	39,000.00	—
9	Travel	12,000.00	—
10	Miscellaneous selling expense	7,400.00	1.00
11	Administrative expenses:
12	Office and officers’ salaries	141,200.00	—
13	Supplies	8,000.00	2.00
14	Miscellaneous administrative expense	13,600.00	1.00
15	Total	$511,200.00	$120.00

It is expected that 21,300 units will be sold at a price of $160 a unit. Maximum sales within the relevant range are 25,825 units

B. What is the expected contribution margin ratio?

C. Determine the break-even sales in units and dollars. Start by using the contribution margin ratio (part B.) and then round your answers to the nearest whole number.

Units	units
Dollars	$

D. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?

$

E. What is the expected margin of safety in dollars and as a percentage of sales? If applicable, use amounts previously computed and then round your answers to the nearest whole number.

Dollars	$
Percentage

F. Determine the operating leverage. Round to one decimal place.

Answer 1

Formula sheet

A	B	C	D	E	F	G	H	I
2
3		B)
4
5		Contribution margin ratio is given by following formula:
6		Contribution margin ratio	=Contribution Margin per unit / Price per unit
7
8		Calculation of contribution margin per unit:
9
10		Contribution margin can be calculated as follows:
11		Contribution margin Per unit	= Selling Price per unit- Variable cost per unit
12		Using the following data:
13		Selling Price Per unit	160
14		Total variable cost per unit	120
15
16		Contribution margin Per unit	= Selling Price per unit- Variable cost per unit
17			=D13-D14
18
19		Hence Contribution margin per unit is	=D17
20
21		Calculation of contribution margin ratio:
22
23		Contribution margin ratio is given by following formula:
24		Contribution margin ratio	=Contribution Margin per unit / Price per unit
25		Using the following data:
26		Selling Price Per unit	160
27		Contribution margin per unit	=D19
28
29		Contribution margin Per unit	=Contribution Margin per unit / Price per unit
30			=D27/D26
31
32		Hence Contribution margin ratio is	=D30
33
34		C)
35
36		Breakeven sales in $ can be calculated as follows:
37
38
39
40
41		Using the folling data:
42		Contribution margin ratio	=D32
43		Fixed Cost	511200
44
45		Breakeven Sales in Dollar	=Fixed Costs / Contribution margin ratio
46			=D43/D42	=D27/D26
47
48		Hence breakeven sales in $ is	=ROUND(D46,0)
49
50		Breakeven Sales in units	=Breakeven Sales in $ / Sale Price per unit
51			=D48/D26	=D48/D26
52
53		Hence breakeven sales in units is	=D51
54
55		D)
56
57		Selling Price Per unit	160
58		Variable Cost per unit	120
59		Total Fixed cost	511200
60
61		Units sold	Sales	Variable Cost	Fixed Cost	Total Cost	Profit
62		5000	=C62*$D$57	=C62*$D$58	=$D$59	=E62+F62	=D62-G62
63		=C62+1000	=C63*$D$57	=C63*$D$58	=$D$59	=E63+F63	=D63-G63
64		=C63+1000	=C64*$D$57	=C64*$D$58	=$D$59	=E64+F64	=D64-G64
65		=C64+1000	=C65*$D$57	=C65*$D$58	=$D$59	=E65+F65	=D65-G65
66		=C65+1000	=C66*$D$57	=C66*$D$58	=$D$59	=E66+F66	=D66-G66
67		=C66+1000	=C67*$D$57	=C67*$D$58	=$D$59	=E67+F67	=D67-G67
68		=C67+1000	=C68*$D$57	=C68*$D$58	=$D$59	=E68+F68	=D68-G68
69		=C68+1000	=C69*$D$57	=C69*$D$58	=$D$59	=E69+F69	=D69-G69
70		=C69+1000	=C70*$D$57	=C70*$D$58	=$D$59	=E70+F70	=D70-G70
71		=C70+1000	=C71*$D$57	=C71*$D$58	=$D$59	=E71+F71	=D71-G71
72		=C71+1000	=C72*$D$57	=C72*$D$58	=$D$59	=E72+F72	=D72-G72
73		=C72+1000	=C73*$D$57	=C73*$D$58	=$D$59	=E73+F73	=D73-G73
74		=C73+1000	=C74*$D$57	=C74*$D$58	=$D$59	=E74+F74	=D74-G74
75