Question

# Break-Even Units, Contribution Margin Ratio, Margin of Safety Khumbu Company's projected profit for the coming year...

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 \$3,543,500 \$38.00 Total variable cost 1,133,920 12.16 Contribution margin \$ 2,409,580 \$ 25.84 Total fixed cost 1,020,528 Operating income \$ 1,389,052

Required:

. 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

1. Break-even point in units = Total fixed cost / Contribution margin per unit = \$1,020,528/\$25.84 = 39,494 units

2. Required profit = \$240,000

Target contribution margin = Required profit + Fixed costs = \$240,000 + \$1,020,528 = \$1,260,528

Units to be sold = Target contribution margin / Contribution margin per unit = \$1,260,528/\$25.84 = 48,782 units

3. Contribution margin ratio = Contribution margin / Sales = \$ 2,409,580/\$3,543,500 = 68%

Additional profit = Additional sales * Contribution margin ratio = \$160,000 * 68% = \$108,800

4. Margin of safety in units = Operating income / Contribution margin per unit = \$ 1,389,052 / \$25.84 = \$53,755 units

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