Question

Information concerning a product produced by Ender Company appears here:

Sales price per unit	$	162
Variable cost per unit	$	89
Total annual fixed manufacturing and operating costs	$	467,200

Required

Determine the following:

1. Contribution margin per unit.
2. Number of units that Ender must sell to break even.
3. Sales level in units that Ender must reach to earn a profit of $182,500.
4. Determine the margin of safety in units, sales dollars, and as a percentage.

Answer 1

Contribution margin per unit.

Contribution margin per unit = Selling price per unit – Variable cost per unit

= $162 per unit - $89 per unit+

= $73 per unit

.

Number of units that Ender must sell to break even.

Number of units that Ender must sell to break even = Total fixed costs / Contribution margin per unit

= $467,200 / $73 per unit

= 6,400 units

Sales level in units that Ender must reach to earn a profit of $182,500.

Sales level in units to earn a profit of $182,500 = [Total fixed costs + Target profit] / Contribution margin per unit

= [$467,200 + $182,500] / $73 per unit

= $649,700 / $73 per unit

= 8,900 units

NOTE

The actual number of sales units is not given, and therefore, the margin of safety in units and sales dollars cannot be determined.