Question

In: Accounting

GARY CORP HAS THE FOLLOWING DATA: VC/UNIT $57.60 VC % 60% FIXED COSTS $374,400 TAX...

GARY CORP HAS THE FOLLOWING DATA:

VC/UNIT $57.60

VC % 60%

FIXED COSTS $374,400

TAX RATE 40%

ASSUME GARY HAD AFTER-TAX NET INCOME = $235,008. WHAT IS GARY’S MARGIN OF SAFETY IN UNITS?

Expert Solution

Answer : Margin of Safety = 10,200 ( units)

Variable Cost per unit = $ 57.60

Variable cost (%) = 60%

Fixed Cost = $ 374,400

Tax Rate = 40%

After Tax Net income = $235,008

Solution :

Selling Price Per unit = Variable Cost / Variable Cost % = $57.60 /60% = $96

Contribution MArgin Per unit = Selling price - Varaible cost = $96 - $ 57.60 = $38.40

Break Even Point ( Units) = Fixed Cost / Contribution Margin = $ 374,400 / $38.40 = 9750 Units

Actual sales = (38.40 * ( Actual Units)) - 374,400)* (1-Tax) = $ 235,008

=(38.4Units -374,400 )*0.60 = $235,008

= 23.04 units = 224640+$235008

= Actula Units = $459648 / 23.04 = 19,950( Units)

MArgin of safety (units) = Actula Units - BEP Unit = 19950-9750 = 10,200 Units ( answer)

ekkarill92 answered 2 years ago

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