Question

Contribution Margin, Break-Even Units, Contribution Margin Income Statement, Margin of Safety

Zebra Company manufactures custom-designed skins (covers) for iPods^® and other portable MP3 devices. Variable costs are $6.00 per custom skin, the price is $10, and fixed costs are $116,000.

Required:

1. What is the contribution margin for one custom skin? Round your answer to the nearest cent.
$ per custom skin

2. How many custom skins must Zebra Company sell to break even?
    custom skins

3. If Zebra Company sells 30,000 custom skins, what is the operating income?
$

4. Calculate the margin of safety in units and in sales revenue if 30,000 custom skins are sold.

Margin of safety in units		units
Margin of safety in sales revenue	$

Answer 1

1) contribution margin for one custom skin

Selling price - variable cost

= $10 - $6 = $4

Contribution margin for one custom skin = $4

2) break even point in unit's

break even point = fixed cost/contribution margin per unit

= $116000/$4 = 29000 custom skins

3)

​​​​​

Sales (30000×$10)	$300000
(-) variable expenses (30000×$6)	($180000)
Contribution margin	$120000
(-) fixed expenses	($116000)
Operating income	$4000

4) margin of safety = profit/contribution margin ratio

Contribution margin ratio = $120000/$300000×100 = 40%

Margin of safety in dollars = $4000/40% = $10000

Margin of safety in unit's = $10000/$10 = 1000units

ALL THE BEST

PLEASE DO SUPPORT US

ANY DOUBT PLEASE COMMENT BELOW

THANK YOU