Question

Sandy Bank, Inc., makes one model of wooden canoe. and, the information for it follows: Number of canoes produced and sold 450 650 800 Total costs Variable costs $ 67,500 $ 97,500 $ 120,000 Fixed costs $ 374,400 $ 374,400 $ 374,400 Total costs $ 441,900 $ 471,900 $ 494,400 Cost per unit Variable cost per unit $ 150.00 $ 150.00 $ 150.00 Fixed cost per unit 832.00 576.00 468.00 Total cost per unit $ 982.00 $ 726.00 $ 618.00 Sandy Bank sells its canoes for $475 each. Required: 1. Suppose that Sandy Bank raises its selling price to $600 per canoe. Calculate its new break-even point in units and in sales dollars. 2. If Sandy Bank sells 900 canoes, compute its margin of safety in units and as a percentage of sales. (Use the new sales price of $600.) 3. Calculate the number of canoes that Sandy Bank must sell at $600 each to generate $110,000 profit. rev: 03_06_2019_QC_CS-161814, 03_13_2019_QC_CS-161814, 10_04_2019_QC_CS-184582

Answer 1

Answer:

Part 1 – Compute the new break-even point in units and in sales if selling Price is 600 as follows:

Break-even point (in units) = Fixed cost / Contribution per unit

Here,

Contribution per unit = Selling price per unit – Variable cost per unit

Substitute the values and obtain net as.

Break-even point (in units) = $374400 / $600 - $150

Break-even point (in units) = $374400/ $450  

Break-even point (in units) = 832 Canoes

Break-even point (in dollars) = Fixed cost / contribution margin ratio

Here.

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

Substitute the values and obtain net as.

Break-even point (in dollars) = $374400 / (450/600)

Break-even point (in dollars) = $374400 / 75%

Break-even point (in dollars) = $499200

Part 2 – Compute the margin of Safety if 900 canoes are sold as follows:

Margin of safety (In $) = Actual sales (In $) – Break-even sales (In $)  

Substitute the values and obtain net as.

Margin of safety (In $) = (600 x 900) – 4499200

Margin of safety (In $) = $540000 – 499200  

Margin of safety (In $) = $40800

Margin of safety (as a %) = Margin of safety (In $) / Total sales (In $) x 100

Substitute the values and obtain net as.

Margin of safety (as a %) = 40800 / 540800 x100

Margin of safety (as a %) = 7.56%

Part 3 – Compute the units to be sold to earn desired profit as follows;

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

Substitute the values and obtain net as.

Units to be sold to earn desired profit = (374400 + 110000) / 450

Units to be sold to earn desired profit = 484400 / 450

Units to be sold to earn desired profit = 1076.44

Units to be sold to earn desired profit = 1077 units

Answer 2

Answer:

Explanation:

1) Break even point calculation:

(in units) = Fixed cost/contribution per unit

Contribution per unit = Selling price per unit - Variable cost per unit

Break-even in units = 374400/(600-150) = 832 units

(in dollars) = Fixed cost/Contribution margin ratio

Contribution margin ratio = Contribution margin per unit/Selling price per unit = 450/600

So, break-even in units is 374400/ (450/600) = 499200

2) Margin of safety formula = Actual sales - Break-even sales

Actual sales = 900

Margin of safety = 900 - 832 = 68

Margin of safety as a percentage = Margin of safety/Total sales *100%=

= 68/900 * 100% = 7.56%

3) Units to be sold in order to earn desired profit =

(Fixed cost+Desired profit)/Contribution per unit;

Fixed cost = 374,400

Desired profit = 110,000

Contribution per unit = 450

So, if we input these data into the formula, (374,400+110,000)/450 = 1077 units