Question

Carla Vista Company makes radios that sell for $50 each. For the coming year, management expects fixed costs to total $163,530 and variable costs to be $35 per unit.

Compute the break-even point in dollars using the contribution margin (CM) ratio.

Break-even point

$

Compute the margin of safety ratio assuming actual sales are $790,000. (Round margin of safety ratio to 2 decimal places, e.g. 10.50.)

Margin of safety

%

Compute the sales dollars required to earn net income of $406,470.

Required sales

$

Answer 1

Selling Price = $ 50

Variable CostPer Unit = $35

Fixed cost = $163,530

Contribution Margin Pre Unit = Seling Price - Variable cost per Unit

= 50-35 = $ 15

CM ratio = Contribution Margin / Sales

= 15/50 = 30%

1) Break-Even Dollars = Fixed cost / CM ratio = 163,530/ 30%

= 545,100 (Answer)

2) Margin of safety = ( Actual sales - BEP sales) / Actual Sales

= (790,000-545,100)/790,000 = 31%

= 31.00 % (Answer)

3) Dollars Required to Earn $406,470 Net income

Dollars = ( Fixed cost + Net income ) /CM Ratio

= (163,530+406,470)/30%

= $1,900,000 (Answer)

.