Question

ABC company sold 4,000 units, had fixed cost of $500,000 and an operating income of $80,000....

ABC company sold 4,000 units, had fixed cost of $500,000 and an operating income of $80,000. Determine (1) Breakeven point in sales dollars (2) Contribution margin and contribution margin ratio is 60% (3) Selling price per unit and variable cost per unit. (4) What is the margin of safety. If the fixed cost was $300,000, what would have been the contribution margin at breakeven point.

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Homework Answers

Answer #1

(1) Breakeven point in sales dollars:

Fixed Cost / Contribution margin ratio

500000 / 60% = $833,333

(2) Contribution margin:

Fixed Cost + Operating Income

500000 + 80000

580000

(3) Selling price per unit and variable cost per unit

Since contribution margin is 60%, i.e. sales is

580000/60% = 966667; per unit= 966667/4000 = 241.67

And variable cost is 966667-580000 = 386667; per unit = 386667/4000 = 96.67

(4) Margin of safety = Actual Sales – sales at BEP

966667 – 833333 = $133,334

Contribution margin at break even point always equals its fixed cost, i.e 300000

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