Question

Sandy Bank, Inc., makes one model of wooden canoe. And, the information for it follows:

Number of canoes produced and sold		450		650		800
Total costs
Variable costs	$	63,000	$	91,000	$	112,000
Fixed costs	$	187,200	$	187,200	$	187,200
Total costs	$	250,200	$	278,200	$	299,200
Cost per unit
Variable cost per unit	$	140.00	$	140.00	$	140.00
Fixed cost per unit		416.00		288.00		234.00
Total cost per unit	$	556.00	$	428.00	$	374.00

Required:
1. Suppose that Sandy Bank raises its selling price to $500 per canoe. Calculate its new break-even point in units and in sales dollars. (Do not round intermediate calculations. Round your final answers to nearest whole number.)

New Break Even Units: ______ Canoes

Break Even Sales Revenue: _______



2. If Sandy Bank sells 700 canoes, compute its margin of safety in dollars and as a percentage of sales. (Use the new sales price of $500.) (Round your answers to the nearest whole number.)

Margin of Safety: ______

Percentage of Sales : ________%



3. Calculate the number of canoes that Sandy Bank must sell at $500 each to generate $110,000 profit. (Round your answer to the nearest whole number.)

Target Sales Unit: _____ Canoes

Answer 1

Solution:

Part 1)	Break Even Point in Units
	Total Fixed Cost	$187,200
	Contribution Margin Per Unit (Refer Note 1)	$360
	Break Even Point in Units (Fixed Cost / Unit CM)	520	Canoes
	Break Even Sales Revenue
	Total Fixed Cost	$187,200
	Contribution Margin Ratio (Refer Note 1)	72%
	Break Even Sales REvenue (Fixed Cost / CM Ratio)	$260,000
	Note 1 --
	Unit Selling Price	$500
	Less: Unit Variable Costs	($140)
	Contribution Margin Per Unit (Selling Price - VC)	$360
	CM Ratio (CM Per Unit / Unit Selling Price x 100)	72.00%

Part 2 –

Margin of Safety in sales revenue
Total Sales Revenue (700 Cones*$500)	$350,000
Break Even Point in Sales Revenue	$260,000
Margin of Safety (Sales Revenue - Break Even Sales)	$90,000
Margin of Safety as percentage of sale
Margin of Safety	$90,000
Total Sales	$350,000
Margin of Safety in Percentage (Margin of Safety / Total Sales x 100)	25.71%

Part 3 –

The number of canoes that Sandy Bank must sell at $500 each to generate $110,000 profit = (Total Fixed Cost + Target Profit) / Contribution Margin Per Unit

CM Per Unit = Selling Price 500 – Variable Cost $140 = $360

The number of canoes that Sandy Bank must sell at $500 each to generate $110,000 profit = (Total Fixed Cost $187,200 + Target Profit $110,000) / Contribution Margin Per Unit 360

= $297,200 / 360

= 825.55 Canoes or 826 Canoes

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you