Exercise 1817 Felde Bucket Co a manufacturer of rain barrels

Exercise 18-17 Felde Bucket Co., a manufacturer of rain barrels, had the following data for 2016 Sales Sales price Variable costs Fixed costs 2,080 units $35.67 per unit $12.48 per unit $16,200 What is the contribution margin ratio? (Round answer to 0 decimal places, e.g. 5,275.) Contribution margin ratio LINK TO TEXT VIDEO: APPLIED SKILLS What is the break-even point in dollars? (Round intermediate calculation and final answers to 0 decimal places, e.g. 5,275.) Break-even point s LINK TO TEXT VIDEO: APPLIED SKILLS What is the margin of safety in dollars and as a ratio? (Round ratio to 2 decimal places, e.g. 12.25) Margin of safety Margin of safety ratio LINK TO TEXT VIDEO: APPLIED SKILLS

Solution

Answer to Part 1.

Contribution Margin Ratio = Contribution Margin / Sales * 100
Contribution Margin per unit = Selling Price per Unit – Variable Cost per Unit
Contribution Margin per unit = $35.67 - $12.48
Contribution Margin per unit = $23.19

Contribution Margin Ratio = 23.19 / 35.67 * 100
Contribution Margin Ratio = 65%

Answer to Part 2.

Break Even Point in Dollars = Fixed Cost / Contribution Margin Ratio
Break Even Point in Dollars = 16,200 / 0.65
Break Even Point in Dollars = $24,923.08 or $24,923

Answer to Part 3.

Margin of Safety (in $) = Current Sales – Break Even Sales
Current Sales = 2,080 * $35.67
Current Sales = $74,193.60

Margin of Safety (in $) = $74,193.60 - $24,923.08
Margin of Safety (in $) = $49,270.52

Margin of Safety Ratio = Margin of Safety / Current Sales * 100
Margin of Safety Ratio = 49,270.52 /74,193.60 * 100
Margin of Safety Ratio = 66.41%

Answer to Part 4

Current Contribution Margin = $23.19 * 2,080
Current Contribution Margin = $48,235.20

Expected Contribution Margin = $48,235.20 * 1.30
Expected Contribution Margin = $62,705.76

Expected Unit Sales = Expected Contribution Margin / Contribution Margin per unit
Expected Unit Sales = 62,705.76 / 23.19
Expected Unit Sales = 2,704 units

Increase in Sales = Change in Units Sold * Selling Price per unit
Increase in Sales = (2,704 – 2,080) * $35.67
Increase in Sales = $22,258.08 or $22,258