Question

Brummel Corporation manufactures a single product. The selling price is $120 per unit, and variable costs...

Brummel Corporation manufactures a single product. The selling price is $120 per unit, and variable costs amount to $84 per unit. The fixed costs are $42,000 per month (round any units to the next highest full unit).

Calculate: (show your calculations and round to 2 decimal places)

  1. What is the contribution margin per unit?
  2. What is the contribution margin ratio per unit?
  3. What is the monthly sales volume (in dollars) at the break-even point?
  4. How many units must be sold each month to earn a monthly operating income of $40,000?
  5. What is the monthly margin of safety (in dollars) if 3,000 units are sold each month?
  6. What will be the monthly operating income if 3,000 units are sold each month?
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Answer #1

Break even sales are the units at which there is no profit no loss

A. Contribution Margin per unit = Sales- Variable cost

=$120-$84

=$36

B. CM ratio = Contribution Margin/Sales

=$36/$120

=30%

C.break even poin(In Dollars) = Fixed cost/CM ratio

=$42,000/0.30

=$140,000

D. Units to be sold = Fixed expenses+target profit / [Contribution margin per unit]

=[$42,000+$40,000]/$36

=2,278 units

E.margin of safety = [(current sales-break even sales)/current sales ]* 100

[(3000*$120)-$140,000] /3000*$120] *100

=61.11%

F.Operating Income = contribution MArgin per unit-Fixed cost

=(3000*$36) - $42,000

=$108,000-$42,000

=$66,000

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