Breakeven point & Margin of safety

Question
1. Last month when Harrison Creations, Inc., sold 40,000 units, total sales were $300,000, total variable expenses were $240,000, and fixed expenses were $45,000.

Required:

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a.

What is the company’s contribution margin (CM) ratio?

b.

Estimate the change in the company’s net operating income if it were to increase its total sales by $1,500.

2. [The following information applies to the questions displayed below.]

Maxson Products distributes a single product, a woven basket whose selling price is $8 and whose variable cost is $6 per unit. The company’s monthly fixed expense is $5,500.

Required:

a.

Compute for the company’s break-even point in unit sales using the equation method.

b.Compute for the company’s break-even point in sales dollars using the equation method and the CM ratio.(Do not round intermediate calculations.Round your CM ratio to 2 decimal places.)

CM ratio______________________

Break-even point in dollar sales________________________________

4. Mohan Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning next month’s budget appear below:

Selling price

$25

per unit

Variable expenses

$15

per unit

Fixed expenses

$8,500

per month

Unit sales

1,000

units per month

Required:

a.

Compute the company’s margin of safety.

b. Compute the company’s margin of safety as a percentage of its sales. (%)

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