Question

Contribution Margin, Break-Even Units, Contribution Margin Income Statement, Margin of Safety Zebra Company manufactures custom-designed skins...

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 $9.80 per custom skin, the price is $14, and fixed costs are $68,880.

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 17,000 custom skins, what is the operating income?
$

4. Calculate the margin of safety in units and in sales revenue if 17,000 custom skins are sold.

Margin of safety in units units
Margin of safety in sales revenue $
Business   Accounting   
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Homework Answers

Answer #1
Answer
1) Contribution margin per custom skin
Sale price - Variable cost per unit
$14-9.8 = $4.2
2) Break even sales in units = Fixed Cost / Contribution per unit = $68880 / $4.20 = 16,400 custom skins.
3) Operating Income = 17000 * $4.20 - $68880 = $2520
4) magin of safety in units = units sold - breakeven sales = 17000-16400 = 600 units.
Margin of safety in sales revenue
margin of safety in units * selling price
600 units * $14 = $8400
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