Breakeven point & Margin of safety

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.


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


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.



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


per unit

Variable expenses


per unit

Fixed expenses


per month

Unit sales


units per month



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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