Question

Problem 3-28 The Sheridan Company sells sports decals that can be personalized with a player’s name, a team name, and a jersey number for $9.00 each. Sheridan buys the decals from a supplier for $2.50 each and spends an additional $0.70 in variable operating costs per decal. The results of last month’s operations are as follows:

Sales revenue $13,500

Cost of goods sold 3,750

Gross profit 9,750

Operating expenses 3,200

Operating income $6,550

calculate contribution margin per unit. (Round answer to 2 decimal places, e.g. 0.38.)

Contribution margin per unit in $_______ per unit.

What is Sheridan’s monthly break even point in units? In dollars? (Use your answer of breakeven units to calculate the breakeven point in dollars. Round Breakeven units and point in dollar to 0 decimal places, e.g. 25,000.)

Break even point per ________ unit

Break even sales $_________

What is Sheridan’s margin of safety? (Round answers to 0 decimal places, e.g. 25,000.)

Margin of safety ________ units

Margin of safety $________

Answer 1

1. Contribution margin per unit = Selling price - variable cost

= $9 - 2.5 - 0.70 = $5.8

Contribution margin per unit = $5.80

2. Break even point = 371 units

Working : Fixed cost / contribution margin per unit

Break even point = 2150/ 5.8 = 371 units

Break even point in dollars = $3339

= fixed cost / contribution margin%

= 2150 / (5.8/9*100) =2150 / 64.4%

= $3339

Working : fixed cost = $3200 - (1500*0.70) = $2150

Sales unit = $13500/ $9 = 1500 units

3. Margin of safety= total salrs - Breakeven sales

Margin of safety in units = 1500 - 371 units = 1129 units

Margin of safety in dollars = 1129 *$9 = $ 10,161