A Corporation sells its product for $17 per unit. Its variable cost is $10 per unit, and total fixed costs are $800. Assuming next period’s estimated sales are 300, calculate the following amounts:a. Degree of operating leverageb. Margin of safety in units c. Margin of safety in revenues

· Contribution Margin per unit = Sales Price – Variable Cost per Unit = 17- 10 = 7 unit· Contribution Margin Ratio = Contribution Margin / Sales price = (7/17) * 100= 41.2%· Break-even in units= fixed costs/ Contribution Margin per unit=800/7=114.3 unit· Break-even Point in Dollars = fixed costs/ Contribution Margin Ratio= 800/41.2%=1941· Break even in units= 300+800/7=157 unit· Break even in dollars = 300+800/41.2%=2670· Sales = 114.3 units * 17 sales price per unit = 1938+300=2243 c- Margin safety in dollars =sales-Break even sales = 2243-1941=302 · Variable costs = 10 per unit * 114.3 units = 1143 a- Degree of operating leverage=(sales-variable costs) /(sales – variable costs-fixed costs)=(2243-114) / (2243-1143-800) = 3.7 b- Margin of safety in units= Current Sales Units – Breakeven Point=157-114=43 unit

Question

In: Accounting

A Corporation sells its product for $17 per unit. Its variable cost is $10 per unit, and total fixed costs are $800. Assuming next period’s estimated sales are 300, calculate the following amounts:

a. Degree of operating leverage

b. Margin of safety in units

c. Margin of safety in revenues

Expert Solution

· Contribution Margin per unit = Sales Price – Variable Cost per Unit = 17- 10 = 7 unit

· Contribution Margin Ratio = Contribution Margin / Sales price = (7/17) * 100= 41.2%

· Break-even in units= fixed costs/ Contribution Margin per unit=800/7=114.3 unit

· Break-even Point in Dollars = fixed costs/ Contribution Margin Ratio= 800/41.2%=1941

· Break even in units= 300+800/7=157 unit

· Break even in dollars = 300+800/41.2%=2670

· Sales = 114.3 units * 17 sales price per unit = 1938+300=2243

c- Margin safety in dollars =sales-Break even sales = 2243-1941=302

· Variable costs = 10 per unit * 114.3 units = 1143

a- Degree of operating leverage=(sales-variable costs) /(sales – variable costs-fixed costs)=(2243-114) / (2243-1143-800) = 3.7

b- Margin of safety in units= Current Sales Units – Breakeven Point=157-114=43 unit

ekkarill92 answered 1 year ago

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