4 For the following 3 companies li sted Company2 70000 1000

4. For the following 3 companies li sted: Company2 70,000 $10.00 6.50 150,000 Company 1 Company 3 Number of Units Sold Unit Selling Price Unit Variable Cost Fixed Costs 100,000 $10.00 7.00 150,000 70,000 10.00 8.00 150,000 Calculate the following for all companies Unit Marginal Contribution % Marginal Contribution Total Marginal Contribution a) 2. 3. 4. Margin of safety for each company b) Find the break-even point and break-even in net sale for all three companies by using the marginal contribution equation.

Solution

a)

Company 1:

Unit margin contribution = Sales price - Variable cost

= 10 - 7 = 3

% Marginal contribution = Unit contribution/Unit sales *100

=(3/10) *100 = 30%

Total Marginal contribution = Number of units sold*contribution per unit

= 100000*3 = 300000

Margin of safety = Normal sales - Breakeven sales

= 100000 - 50000 = 50000 units

Company 2:

Unit marginal contribution = 10 - 6.50 = 3.50

% Marginal contribution = 3.5/10 * 100 = 35%

Total Marginal contribution = 70000*3.50 = 245000

Margin of safety = 70000 - 42857.14 = 27142.86

Company 3:

Unit marginal contribution = 10 - 8 = 2

% Marginal contribution = 2/10 * 100 = 20%

Total Marginal contribution = 70000*2 = 140000

Margin of safety = NIL because break even units exceeds normal units

2)

Company 1:

Breakeven Units = Fixed cost/Contribution per unit

= 150000/3 = 50000 units

Break even units in sales = 50000*10 = 500000

Company 2:

Break even units = 150000/3.5 = 42857.14 units

Break even sales = 42857.14 * 10 = 428571.40

Company 3:

Break even units = 150000/2 =75000 units

Break even sales = 75000*10 = 750000