Question

Frisch Corporation produces and sells a single product. Data concerning that product appear below:

Selling price per unit $ 170

Variable expense per unit $ 83.30

Fixed expense per month $ 138,720

Required:

Given the present situation, compute

a. The break-even sales in units.

b. The break-even sales in dollars.

c. The sales in units that would be required to produce a net operating income of $90,000. (1 Mark)

d. The margin of safety in dollars if the company’s actual sales are $310,000. (1 Mark)

Answer 1

a. Break even sales in units = Fixed Cost / Contribution per unit

Fixed Cost = $138,720

Contribution per unit = Selling Price per unit - Variable Cost per unit

= 170 - 83.30

= $86.70

Break even sales in units = 138,720 / 86.70

= 1,600 units

b. Break even sales in dollars = Break even units * Selling Price per unit

= 1,600 * 170

= $272,000

c. Required Sales = (Fixed Cost + Net Operating Income) / Contribution per unit

= (138,720 + 90,000) / 86.70

= 228,720 / 86.70

= 2,639 units (rounded off)

d. Margin of Safety in dollars = Current Sales - Break Even Sales

= 310,000 - 272,000

= $38,000