Question

Fred manufactures lamp shade the selling price of which is $80 per unit. The variable cost...

Fred manufactures lamp shade the selling price of which is $80 per unit. The variable cost of the product is $ 50. The fixed costs are 3,000,000. Fred is presently selling 110000 units

Instructions

a. What is the contribution margin per unit?

b. What is the contribution Margin ratio?

c. What is Fred’s break-even in units?

d. What is the margin of safety?

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Homework Answers

Answer #1

Selling price per unit = $80

Variable cost per unit = $50

Fixed cost = $3,000,000

a.

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

= 80-50

= $30

b.

Contribution margin ratio = Contribution margin per unit / Selling price per unit

= 30/80

=37.5%

c.

Break even in units = Fixed cost / Contribution margin per unit

= 3,000,000/30

= 100,000 units

d.

Margin of safety = Actual sales units - Break even in units

= 110,000-100,000

= 10,000 units

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