Question

ChowMein Company is the exclusive Montana distributor of lawn mowers for a small manufacturing company. It sells only one model at $600 per unit and for which ChowMein pays $250. ChowMein's other variable costs amount to $50 per unit. Fixed costs are $2,000. In April, ChowMein sold 15 lawn mowers and it sold 20 in May.
Required:
Calculate the following values:

a. Monthly break-even point in sales dollars
b. Monthly break-even point in units
c. Monthly income for April
d. Monthly income for May
e. Margin of safety for April

Answer 1

Answer:

ChowMein Company

a. Monthly break-even point in sales dollars = Fixed Costs/Contribution margin

= $2,000/50%

= $4,000

b. Monthly break-even point in units = Fixed Costs/Contribution per unit

= $2,000/$300

= 6.67 or simply 7 units

c. Monthly income for April:

Sales ($600 * 15) = $9,000

Variable cost ($300 * 15) = $4,500

Contribution =   $4,500

Fixed Costs = $2,000

Income = $2,500

d. Monthly income for May:

Sales ($600 * 20) = $12,000

Variable cost ($300 * 20) = $6,000

Contribution =   $6,000

Fixed Costs = $2,000

Income = $4,000

e. Margin of Safety for April:

Sales in April minus Break-even Sales

= $9,000 - $4,000

= $5,000

Explanation:

Data and Calculations:

Unit selling price = $600

Unit variable costs = $300 ($250 + 50)

Unit Contribution = $300

Contribution margin = 50% ($300/$600 * 100)

Fixed Costs = $2,000

April sales = 15

May sales = 20