Question

Kritzberg Company makes and sells a product at $60 per unit that has unit variable costs of $45. The company’s break-even sales is $180,000. How much profit will the company make if it sells 4,000 units?

Answer #1

**Profit can be calculated as= Margin of safety in $ * P/V
ratio**

**Margin of safety** may be defined as the
**difference between actual sales and sales at break-even
point**.

**P/V ratio** is an indicator of the rate at which
profit is being earned. It can be calculated as
**Contribution / Sales**.

**Contribution** can further be calculated as
**Sales - Variable cost**.

**Sales= $60 * 4,000 units= $240,000**

Variable cost= $45 * 4,000 units= $180,000

**Contribution= $240,000 - $180,000= $60,000**

**P/V ratio= ($60,000 / $240,000) * 100= 25%**

**Margin of safety in $= $240,000 - $180,000=
$60,000**

**Profit= 60,000 / 25%=
$240,000**

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