Question

Victoria Company reports the following operating results for the month of April. VICTORIA COMPANY CVP Income Statement For the Month Ended April 30, 2020 Total Per Unit Sales (10,000 units) $460,000 $46 Variable costs 230,000 23.00 Contribution margin 230,000 $23.00 Fixed expenses 179,400 Net income $50,600 Management is considering the following course of action to increase net income: Reduce the selling price by 10%, with no changes to unit variable costs or fixed costs. Management is confident that this change will increase unit sales by 10%. Using the contribution margin technique, compute the break-even point in units and dollars and margin of safety in dollars: (Round intermediate calculations to 4 decimal places e.g. 0.2522 and final answer to 0 decimal places, e.g. 2,510.)

Answer 1

Answer:

The current values for BEp and margin of safety before the proposed changes are:

BEP units: 7,800

in dollars: $ 358,800

Margin of safety:

2,200 units or $ 101,200 of sales

Explanation:

The break even pont is the level of salesthat makes the operating income equal to zero. the margin of safety is the amount above this level at curernt sales.

$Sales \: Revenue - Variable \: Cost = Contribution \: Margin$

Contribution per unit: $23

Fixed Cost $179,400

$\frac{Fixed\:Cost}{Contribution \:Margin \:Ratio} = Break\: Even\: Point_{dollars}$

179,400 / 23 = 7,800

In dollars: 7,800 units x $46 each = $ 358,800

Margin of safety:

10,000 - 7,800 = 2,200

in dollars 460,000 - 358,800 = 101,200