ACC 410 Lecture 3: accounting lecture 3
Get access
Related Documents
Related Questions
Break-Even Units and Sales Revenue: Margin of Safety
Dupli-Pro Copy Shop provides photocopying service. Next year, Dupli-Pro estimates it will copy 2,800,000 pages at a price of $0.08 each in the coming year. Product costs include:
Direct materials | $0.015 |
Direct labor | $0.004 |
Variable overhead | $0.001 |
Total fixed overhead | $80,000 |
There is no variable selling expense; fixed selling and administrative expenses total $46,000.
Required:
Note: In your computations that involve the contribution margin ratio, round the ratio to two decimal places.
1. Calculate the break-even point in units.
units
2. Calculate the break-even point in sales revenue.
$
3. Calculate the margin of safety in units for the coming year.
units
4. Calculate the margin of safety in sales revenue for the coming year.
$
5. What if the total selling and administrative expenses are reduced to $38,800? Recalculate the following:
a. Break-even point in units | units | |
b. Break-even point in sales revenue | $ | |
c. Margin of safety in units for the coming year | units | |
d. Margin of safety in sales revenue for the coming year | $ |
Question 1
Suppose that Head-First Company now sells both bicycle helmetsand motorcycle helmets. The bicycle helmets are priced at $74 andhave variable costs of $48 each. The motorcycle helmets are pricedat $215 and have variable costs of $130 each. Total fixed cost forHead-First as a whole equals $60,000 (includes all fixed factoryoverhead and fixed selling and administrative expense). Next year,Head-First expects to sell 4,850 bicycle helmets and 1,940motorcycle helmets.
Refer to the list below for the exact wording of text itemswithin your income statement.
AmountDescriptions | |
Operating income | |
Operating loss | |
Sales | |
Total contribution margin | |
Total fixed expense | |
Total variable expense |
1. Form a package of bicycle and motorcycle helmets based on thesales mix expected for the coming year.
Product | Price | Unit Variable Cost | Unit Contribution Margin | Sales Mix | Package Contribution Margin |
Bicycle helmet | |||||
Motorcycle helmet | |||||
Package total |
2. Calculate the break-even point in units for bicycle helmetsand for motorcycle helmets.
Break-Even Bicycle Helmets: | |
Break-Even Motorcycle Helmets | : |
Check your answer by preparing a contribution margin incomestatement. Refer to the list of Amount Descriptions for the exactwording of text items within your income statement.
Head-First Company |
Contribution Margin Income Statement |
At Break-Even Point |
1 | ||
2 | ||
3 | ||
4 | ||
5 |
Question 2
Head-First Company now sells both bicycle helmets and motorcyclehelmets. Next year, Head- First expects to produce total revenue of$575,000 and incur total variable cost of $400,000. Total fixedcost is expected to be $60,500.
Refer to the list below for the exact wording of text itemswithin your income statement.
AmountDescriptions | |
Operating income | |
Operating loss | |
Sales | |
Total contribution margin | |
Total fixed expense | |
Total variable expense |
. Calculate the break-even point in sales dollars forHead-First. Round the contribution margin ratio to four decimalplaces and sales to the nearest dollar.
The break-even point in sales equals .
Check your answer by preparing a contribution margin incomestatement. Refer to the list of Amount Descriptions for the exactwording of text items within your income statement.
Head-First Company |
Contribution Margin Income Statement |
At Break-Even Sales Dollars |
1 | ||
2 | ||
3 | ||
4 | ||
5 |