Pronghorn Company estimates that variable costs will be 53 o

Pronghorn Company estimates that variable costs will be 53% of sales, and fixed costs will total $1,269,000. The selling price of the product is $5.

Compute the break-even point in (1) units and (2) dollars.

Assuming actual sales are $3,000,000, compute the margin of safety in (1) dollars and (2) as a ratio.

Solution

Unit contribution margin = 5*(1-0.53)= 2.35 Break-even point in units = 1269000/2.35= 540000 Break-even point in dollars = 540000*5= 2700000 Margin of safety in dollars=3000000-2700000 = $300000 Margin of safety as ratio = 300000/3000000 = 10%