Question

TO GO! writes and manufactures murder mystery parlor games that it sells to retail stores. The following is per-unit information relating to the manufacture and sale of this product. Unit sales price $ 30 Variable cost per unit 6 Fixed costs per year 360,000 a. Determine the contribution margin ratio. b. Determine the sales volume (in dollars) required to break even. c. Determine the sales volume (in dollars) required to earn an annual operating income of $440,000. d. Determine the margin of safety (in dollars) if annual sales total 60,000 units.

Answer 1

Answer:

Instructions are below.

Explanation:

Giving the following information:

Unit sales price $ 30

Variable cost per unit 6

Fixed costs per year 360,000

To calculate the contribution margin ratio, we need to use the following formula:

Contribution margin ratio= contribution margin / selling price

Contribution margin ratio= (30 - 6) / 30

Contribution margin ratio= 0.8

The break-even point in dollars formula is:

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point in units= 360,000 / 0.8

Break-even point in units= $450,000

Now, the desired profit is $440,00:

Break-even point (dollars)= (fixed costs + desired profit) / contribution margin ratio

Break-even point (dollars)= (360,000 + 440,000) / 0.8

Break-even point (dollars)= $1,000,000

Finally, the margin of safety:

Sales= 60,000*30= $18,000,000

Margin of safety= (current sales level - break-even point)

Margin of safety= 18,000,000 - 450,000

Margin of safety=  $17,550,000