Question

Sandy Bank, Inc., makes one model of wooden canoe. and, the information for it follows:

Number of canoes produced and sold		500		700		850
Total costs
Variable costs	$	90,000	$	126,000	$	153,000
Fixed costs	$	119,000	$	119,000	$	119,000
Total costs	$	209,000	$	245,000	$	272,000
Cost per unit
Variable cost per unit	$	180.00	$	180.00	$	180.00
Fixed cost per unit		238.00		170.00		140.00
Total cost per unit	$	418.00	$	350.00	$	320.00

Sandy Bank sells its canoes for $475 each.

Required:

1. Suppose that Sandy Bank raises its selling price to $600 per canoe. Calculate its new break-even point in units and in sales dollars.

2. If Sandy Bank sells 1,550 canoes, compute its margin of safety in units and as a percentage of sales. (Use the new sales price of $600.)

3. Calculate the number of canoes that Sandy Bank must sell at $600 each to generate $120,000 profit.

• Required 1

Suppose that Sandy Bank raises its selling price to $600 per canoe. Calculate its new break-even point in units and in sales dollars. (Do not round intermediate calculations. Round your final answers to nearest whole number.)

New Break-Even Units		Canoes
Break-Even Sales Revenue

• Required 2

If Sandy Bank sells 1,550 canoes, compute its margin of safety in units and as a percentage of sales. (Use the new sales price of $600.) (Round your answers to the nearest whole number.)

Margin of Safety
Percentage of Sales		%

required 3

Calculate the number of canoes that Sandy Bank must sell at $600 each to generate $120,000 profit. (Do not round your intermediate calculations. Round your answer to the nearest whole number.)

Target Sales Units

Canoes

Answer 1

Ans:

1.

Selling preice per Unit = $600

Variable cost per Unit = $180

Contribution per unit = sales price - variable costs = $600-$180 = $420

Fixed costs = $119,000

Break Even = Fixed costs/ Contribution per unit = $119,000/$420 = 283.333 or 284 Units

Break even in $ = Break even units * sale price = 283.33 *$600 = $170,000

2.

If sandy bank sales 1550 canoe its margin of safety will be:

Margin of safety = Sales units - Break even sales = 1,550 - 283.33 = 1,266.67 or 1267 units

Margin of safety as a percentage of sales = Margin of safety units/Sales units

= 1,266.67/1,550 = 81.72%

3.

To generate the profit of $120,000, minimum units to be sold @ $600 per unit :

Fixed Cost = $119,000

Profit required = $120,000

Contribution required = $119,000 + $120,000 = $239,000

Contribution per unit = $420

Sales required in units = $239,000/420 = 569.04 Units or 570 units.