Break-Even Units, Contribution Margin Ratio, Margin of Safety
Khumbu Company's projected profit for the coming year is as follows:
|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|
1. Compute the break-even point in units. If
required, round your answer to nearest whole value.
2. How many units must be sold to earn a profit
of $240,000? If required, round your answer to nearest whole
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
4. For the projected level of sales, compute
the margin of safety in units.
Break-even point in units = Fixed cost / Contribution margin per unit
= $1,009,369 / $28.7
= 35,170 units
Units to be sold = (Fixed cost + Desired profit) / Contribution margin per unit
= ($1,009,369 + $240,000) / $28.7
Contribution margin ratio = Contribution margin per unit / Selling price per unit
= $28.7 / $41.00
Additional profit = $160,000 * 0.7
Sales in units = $3,331,250 / $41
Margin of safety in units = Sales in units - Break-even sales in units
= 81,250 - 35,170
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