Question

1. Break-Even Units, Contribution Margin Ratio, Margin of Safety

   Khumbu Company's projected profit for the coming year is as follows:

   	Total			Per Unit
   Sales	$3,150,000			$45.00
   Total variable cost	819,000			11.70
   Contribution margin	$2,331,000			$ 33.3
   Total fixed cost	819,000
   Operating income	$1,512,000

   Required:

   1. Compute the break-even point in units. If required, round your answer to nearest whole value.
   ______ units

   2. How many units must be sold to earn a profit of $240,000? If required, round your answer to nearest whole value.
   ______ units

   3. Compute the contribution margin ratio. If required, round your answer to nearest whole number.
   _____ %

   Using the rounded ratio from above, compute the additional profit that Khumbu would earn if sales were $160,000 more than expected.
   $______

   4. For the projected level of sales, compute the margin of safety in units.
   _______ units

Answer 1

Required 1 :
Break even point in units = Total fixed cost / Contribution margin per unit = 819000 / 33.3	24595	units
Required 2 :
Units sales needed = ( Total fixed cost + Target profit ) / Contribution margin per unit = ( 819000 + 240000 ) / 33.3	31802	units
Required 3 :
Contribution margin ratio = Contribution margin / Sales = 2331000 / 3150000	74%
Additional profit = Additional sales * Contribution margin ratio = 160000 * 74%	118400
Required 4 :
Projected sales units = Projected Sales / Selling price per unit = 3150000 / 45.00	70000
Margin of safety in units = Projected sales units - break even point in units = 70000 - 24595	45405