Answer:
a. The Contribution margin per unit is $80
b. The Number of units that Franklin must sell to break even is 6,600 units
c. The Sales level in units that Franklin must reach to earn a profit of $272,000 is 10,000 units
d. The margin of safety in units is 3,400 units
The margin of safety in sales dollars is $581,400
The margin of safety as a percentage is 34%
Explanation:
a. In order to calculate the Contribution margin per unit we would have to use the following formula:
Contribution margin per unit = Sale Price - Variable Cost
= $171 - $91
= $80
b. To calculate the Number of units that Franklin must sell to break even we would have to use the following formula:
Break even sales (in units) = Fixed Cost / Contribution margin per unit
= $ 528,000 / $80
= 6,600 units
c. To calculate the Sales level in units we would have to use the following formula:
Sales level in units= (Fixed Cost + Desired Profit) / Contribution Margin Per unit
=($ 528,000+$272,000)/$80
= 10,000 units
d. To calculate the margin of safety in units, sales dollars, and as a percentage we would have to use the following formula:
Margin of Safety (in Units) = Sales - Break even Sales
= (10,000 - 6,600) units
= 3,400 units
Margin of Safety (in $) = Margin of Safety (in units) x Sale Price
= 3,400 units * $171
= $581,400
Margin Of Safety (in percentage) = (Actual Sales - Break even sales) / Actual Sales
= (10,000 units -6,600 units) / 10,000 units
= 34%
