Question

Current operating income for Bay Area Cycles Co. is $52,000. Selling price per unit is $100, the contribution margin ratio is 20%, and fixed expense is $208,000.
Required:
Calculate Bay Area Cycle’s break-even point in units and total sales dollars

Break Even Units

Break Even Dollars

Calculate Bay Area Cycle’s margin of safety and margin of safety ratio.

Margin of Safety

Margin of Safety Ratio

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

The current operating income for Bay Area Cycles Co. is $52,000. The selling price per unit is $100, the contribution margin ratio is 20%, and fixed expense is $208,000.

Break-even point= fixed costs/ contribution margin

Break-even point= Break-even point (dollars)/ selling price

Break-even point= 1,040,000/100= 10,400 units

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

Break-even point (dollars)= 208,000/ 0.20= $1,040,000

Current sales level= 52,000 + 208,000= $260,000

Margin of safety in untis= 2,600 - 10,400= - 7,800 units

Margin of safety ratio= -7,800/2,600= -300%