Question

Contribution Margin Concepts DiPinto Electric Guitars & Basses sells musical instruments in Philadelphia. Assume the following...

Contribution Margin Concepts
DiPinto Electric Guitars & Basses sells musical instruments in Philadelphia. Assume the following information comes from the company's prior year records.

Fixed Variable Total
Sales $800,000
Costs
Goods sold $346,000
Labor $180,000 40,000
Supplies 10,000 4,000
Utilities 9,000 5,000
Rent 48,000 -
Advertising 10,000 -
Miscellaneous 10,000 5,000
Total costs $267,000 $400,000 (667,000)
Net income $133,000

Required


(a.) Determine the annual break-even dollar sales volume.

Contribution margin ratio: Answer


Annual break-even dollar sales volumes: $Answer

(b.) Determine the current margin of safety in dollars.
$Answer

(c.) What is the annual break-even dollar sales volume if management makes a decision that increases fixed costs by $50,000?

$Answer

Homework Answers

Answer #1

(a)

Contribution margin ratio = (Sales - Variable costs) / Sales

= ($800,000 - $400,000) / $800,000

= $400,000 / $800,000

= 50%

Break even dollar sales volume = Fixed costs / Contribution margin ratio

= $267,000 / 50%

= $534,000

(b)

Margin in safety in dollars = Current sales - Break even sales

= $800,000 - $534,000

= $266,000

(c)

Break even sales in dollars = Revised fixed costs / Contribution margin ratio

= ($267,000 + $50,000) / 50%

= $317,000 / 50%

= $634,000

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