Question

Question 1 Presto Company makes radios that sell for $26 each. For the coming year, management expects fixed costs to total $309,100 and variable costs to be $9.10 per unit. Compute the break-even point in dollars using the contribution margin (CM) ratio. (Round answer to 0 decimal places, e.g. 1,225.) Break-even point $ LINK TO TEXT Compute the margin of safety ratio assuming actual sales are $850,000. (Round margin of safety ratio to 2 decimal places, e.g. 10.50.) Margin of safety % LINK TO TEXT Compute the sales dollars required to earn net income of $243,530. Required sales $

Answer 1

Break-even point in dollars = $4,75,538

Contribution per unit    = Selling price per unit – Variable cost per unit

                                      = $26 - $9.10 = $16.90

Contribution Ratio = ($16.90/$26)*100 = 65%

Break Even point in Dollars = Fixed Cost / Contribution ratio

= $3,09,100 / 0.65

= $4,75,538

Compute the margin of safety ratio = 44.05%

Margin of safety ratio = (Margin of safety/Actual Sales)*11

Margin of safety = Actual Sales – Break Even Sales

                             = $8,50,000 - $4,75,538

                             = $3,74,462

Therefore, Margin of safety ratio      = ($3,74,462 / $8,50,000)*100

                                                          = 44.05%

sales dollars required to earn net income of $243,530 = $8,50,200

Sales dollars required    = (Fixed Costs + Target Income) / Contribution ratio

                                      = ($3,09,100 + $2,43,530) / 0.65

                                      = $5,52,630 / 0.65

                                      = $8,50,200