Question
In: Accounting
Last month, Laredo Company sold 580 units for $90 each. During the month, fixed costs were...
Last month, Laredo Company sold 580 units for $90 each. During the month, fixed costs were $3,330 and variable costs were $9 per unit.
Required:
1. Determine the unit contribution margin and contribution margin ratio.
2. Calculate the break-even point in units and sales dollars.
3. Compute Laredo’s margin of safety in units and as a percentage of sales.
Solutions
Expert Solution
Requirement 1
| Contribution margin per unit | $ 81.00 |
| Contribution margin ratio (81/90) | 90% |
.
Requirement 2
| Break Even sales in units | 41 |
| Break Even sales revenue | $ 3,700.00 |
.
Requirement 3
| Margin of safety in units | 539 |
| Margin of safety in dollar | $ 48,500.00 |
Working
| A | Sales price per unit | $ 90.00 |
| B | Variable cost per unit | $ 9.00 |
| C=A-B | Contribution margin per unit | $ 81.00 |
| Contribution margin ratio (81/90) | 90% | |
| D | Fixed cost | $ 3,330.00 |
| E=D/C | Break Even sales in units | 41 |
| F=E x A | Break Even sales revenue | $ 3,700.00 |
.
| Actual sales in units | 580 |
| Break even units | 41 |
| Margin of safety in units | 539 |
| Margin of safety in dollar [(580 x 90)-3700] | $ 48,500.00 |
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$10
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$22,000
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23000
$8
Item #3
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7500
$15,000
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27500
$7
Item #4
$27,000
5000
$5,000
$500
11000
$6
Complete the grey cells in the
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Dollars
Contribution Dollars per
Unit
Contribution Margin
Percentage
Item #1
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10000
$25,000
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22500
$10
Item #2
$55,000
20000
$22,000
$2,500
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