Question

Glacial Company estimates that variable costs will be 53.1% of sales, and fixed costs will total $710,000. The selling price of the product is $3.50.
Required:
a. Compute the break-even point in (1) units and (2) dollars. (Round intermediate calculations to 2 decimal places, e.g. $8.75 or .48 Round final answers to 0 decimal places, e.g. 485,000.)
b. Compute the margin of safety in (1) dollars and (2) as a ratio, assuming actual sales of $2,000,000. (Round the Margin of Safety ratio to 0 decimal places, e.g. 27%.)

Answer 1

Solution:

Variable costs will be 53.1%

Selling price of the product is $3.50

Fixed costs $710,000

Now,

$3.50 x 37.5% = $131.25 CM per unit

Compute the break-even point in  

(1) units and  

710,000/ 131.25 = 5409.523 units

(2) dollars.

5409.523 x $3.50 = $18,933.33

Compute the margin of safety in (1) dollars and .

2,000,000 - $18,933.33 = $1,981,066

(2) as a ratio, assuming actual sales are $2,000,000

5409.523/ 2,000,000 = 20%