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Mini-Exercise 12-5 Break-even analysis LO 9, 11 Current operating income for Bay Area Cycles Co. is...

Mini-Exercise 12-5 Break-even analysis LO 9, 11 Current operating income for Bay Area Cycles Co. is $56,000. Selling price per unit is $100, the contribution margin ratio is 20%, and fixed expense is $228,000. Required: 1. Calculate Bay Area Cycle’s break-even point in units and total sales dollars. 2. Calculate Bay Area Cycle’s margin of safety and margin of safety ratio.

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Answer #1

Calculating Break even point

Break even point in units = ( Fixed cost / Contibution per unit)

Contribution per unit = 100 * 20 % = 20.

Break even point in units = ( 228000 / 20 ) = 11400 units.

Break even point in dollars = ( Fixed cost / CM ratio )

Break even point in dollars = ( 228000 / 20 % ) = $ 1140000.

Calculating margin of safety

Margin of safety = Actual sales - Break even point.

Actual sales = ( 56000 + 228000 ) /20 % = $ 1420000.

Margin of safety = $ 1420000 - $ 1140000.

Margin of safety = $ 280000.

Margin of safety percentage = ( $ 280000 / $ 1420000 ) * 100 = 19.72%

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