Answer and Explanation:
a. The computation of the contribution margin ratio and annual break even dollar sales volume is shown below:
Total sales $2,250,000
Less: Variable cost:
Goods sold -$1,012,500
Labor -$180,000
Supplies -$15,000
Utilities -$39,000
Advertising -$73,500
Miscelloneous -$30,000
Total variable cost ($1,350,000)
So, Contribution margin ratio $900,000
Now
Contribution margin ratio is
= contribution margin ÷ sales
= $900,000 ÷ $2,250,000
= 40%
And,
Annual breakeven dollars in sales volume is
= Fixed cost ÷ contribution margin ratio
= $630,000 ÷ 40%
= $1,575,000
b. Now the margin of safety in dollars is
= Current sales level - Break even sales level
= $2,250,000 - $1,575,000
= $675,000
d. Now the annual break even in dollars is
= Total fixed cost ÷ contribution margin
= ($630,000 + $100,000) ÷ 40%
= $730,000 ÷ 40%
= $1,825,000
We simply applied the above formulas
