Answer:
Instructions are below.
Explanation:
Giving the following information:
Sales= $640,000 ($40)
Variable expenses= 448,000 (28)
Contribution margin= 192,000 ($12)
Fixed expenses= (145,200)
Net operating income=$46,800
1) To calculate the break-even point in units and dollars, we need to use the following formulas:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 145,200/(40-28)
Break-even point in units= 12,100 units
Break-even point (dollars)= fixed costs/ contribution margin ratio
Break-even point (dollars)= 145,200/ (12/40)
Break-even point (dollars)= $484,000
<u>2) The break-even point is the number of units to sell to reach a net profit of cero. Therefore, the contribution margin must be equal to the fixed costs.</u>
Contribution margin= 145,200
3) profit= $75,600
Break-even point in units= (fixed costs + desired profit)/ contribution margin per unit
Break-even point in units= 220,800/12
Break-even point in units= 18,400 units
Sales= 18,400*40= 736,000
Total variable costs= 18,400*28= (515,200)
Contribution margin= 220,800
Fixed costs= 145,200
Net profit= 75,600
4) The margin of safety:
Margin of safety= (current sales level - break-even point)
Margin of safety= 640,000 - 484,000= $156,000
Margin of safety ratio= (current sales level - break-even point)/current sales level
Margin of safety ratio= 156,000/640,000
Margin of safety ratio= 0.244= 24.4%
5) Contribution margin ratio= 12/40= 0.3
Net increase= 96,000*0.3= $28,800
