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 \$3,331,250 \$41.00 Total variable cost 999,375 12.30 Contribution margin \$ 2,331,875 \$ 28.7 Total fixed cost 1,009,369 Operating income \$ 1,322,506

Required:

1. 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 = Fixed cost / Contribution margin per unit

= \$1,009,369 / \$28.7

= 35,170 units

2.

Units to be sold = (Fixed cost + Desired profit) / Contribution margin per unit

= (\$1,009,369 + \$240,000) / \$28.7

= 43,532

3.

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

= \$28.7 / \$41.00

= 0.7

Additional profit = \$160,000 * 0.7

= \$112,000

4.

Sales in units = \$3,331,250 / \$41

= 81,250

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

= 81,250 - 35,170

= 46,080

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