Assignment

Assignment No.: #2

Exercise 6-10 Break-even Analysis; Target Profit; Margin of Safety; CM Ratio 1. What is the monthly break-even point in units sold and in sales dollars?

Break-even point in units sold = Fixed expenses
Unit Contribution Margin

$ 150,000
$ 12 per unit =

= 12, 500 units

Break-even point in total sales dollars = Fixed expenses
Contribution Margin Ratio
$ 150,000
30%

=

= $ 500,000

2. Without resorting to computations, what is the total contribution margin at the break-even point?

The total contribution margin at the break-even point is $ 150, 000.

3. How many units would have to be sold each month to earn a target profit of $18, 000? Use the contribution margin method. Verify your answer by preparing a contribution format income statement at the target level of sales.

Units sales to attain the target profit = Fixed Expenses + Target Profit Unit Contribution Margin

= $ 150, 000 + $ 18, 000 $ 12 per unit

= 14, 000 units
Dollars sales to attain target profit = Fixed Expenses + Target Profit Contribution Margin Ratio

= $ 150, 000 + $ 18, 000 30 %

= $ 560, 000

Pringle Company
Contribution Income Statement Total Per Unit
Sales (14, 000 units)…….. $ 560,000

$ 40
Variable Expense………... 392,000

28
Contribution Margin…….. $ 168,000

$ 12
Fixed Expense…………… 150,000

Net Operating Income…… $ 18,000

4. Refer to the original data. Compute the company’s margin of safety in both dollar and percentage terms.

Margin of Safety = Total Budgeted (Actual) Sales – Break-even Sales

= $ 600, 000 - $ 500, 000

= $ 100, 000

Margin of Safety Percentage =