Points Spice Companys most tmonly 60000 42000 given below

) & Points Spice Company\'s most tmonly $60,000 42000 given below Sales Variable expenses Contribution margin Fixed expenses Net operating Income I 8.000 1200 The conpaey selis its only prodhict for $5 per unit There was no beining o inventories Required rere points Show your work in answering the question. Failure to do so results in a What are total sales in dollars at the break-even point? b. What is units sold at break-even point? c. What are total variable expenses at the break-even d. What are the total fixed costs at break-even point? e What is the company\'s contribution margini ratio? f What is the margin of safety if sales were $100,000 g What is the operating leverage at $60,000 of sales? h How many units need to be sold to have a before tax profit of $49:950

Solution

Answer

Units sold = Sales / Per unit cost

= $60,000 / $5 per unit

= 12,000 Units

b.

Contribution per unit = Contribution / No. of Units sold

= ($18,000/12,000 Units

= $1.5 per unit

Breakeven point (In Units) = Fixed Cost / Contribution per unit

= 12,000 / 1.5

Breakeven point (In Units) = 8,000 Units

a.

Breakeven point (In Value) = Breakeven point (In Units) * Selling price per unit

= 8,000 Units * $5 per unit

Breakeven point (In Value) = $40,000

c.

Variable expenses per unit = Variable expenses / no. of units sold

= $42,000 / 12,000 Units

= $3.5 per unit

Total variable cost at breakeven point = Variable expenses per unit * Breakeven point (In Units)

= $3.5 per unit * 8,000 Units

Total variable cost at breakeven point = $28,000

d.

As we know that fixed cost is the cost which remains same irrespective of the units produced or sold.

So at any level fixed cost will remain the same.

Fixed Cost at Breakeven point = $12,000

e.

Contribution Margin Ratio = Contribution Margin / Sales

= 18,000 / 60,000

Contribution Margin Ratio = 30%

f.

Margin of Safety (In Value) = Actual Sales value - Breakeven point (In Value)

= 100,000 – 40,000

Margin of Safety (In Value) = $60,000

g.

Operating Leverage = Contribution / EBIT(Earning before interest and tax)

= 18,000 / 6,000

Operating Leverage = 3

h.

Let no. of units to be sold = x

Sales = 5x ($5 per unit * x)

Variable expenses = 3.5x ($3.5 per unit * x)

Fixed Expenses = $12,000

We know that,

Profit before Tax = Sales – Variable expenses – fixed Cost

49,950 = 5x – 3.5x – 12,000

(49,950 + 12,000) / 1.5 = x

41,300 = x

No. of Units to sold to get $49,950 = 41,300 Units