Answered

Welcome to Westonci.ca, where your questions are met with accurate answers from a community of experts and enthusiasts. Explore thousands of questions and answers from knowledgeable experts in various fields on our Q&A platform. Connect with a community of professionals ready to provide precise solutions to your questions quickly and accurately.

Current operating income for Bay Area Cycles Co. is $26,000. Selling price per unit is $100, the contribution margin ratio is 25% and fixed expense is $104,000. Required: 1. Calculate Bay Area Cycle's breakeven point in units and total sales dollars. Break-even units Break-even dollars 2. Calculate Bay Area Cycle's margin of safety and margin of safety ratio.

Sagot :

facundobuzzetti

Answer:

Results are below.

Explanation:

First, we need to calculate the unitary contribution margin:

Unitary contribution margin= 100*0.25

Unitary contribution margin= $25

Now, we can calculate the break-even point in units and dollars:

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units= 104,000 / 25

Break-even point in units= 4,160

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 104,000 / 0.25

Break-even point (dollars)= $416,000

Finally, the margin of safety in dollars as a ratio:

Current sales= (26,000 + 104,000) / 25

Current sales= 5,200

Margin of safety= (current sales level - break-even point)

Margin of safety= (5,200*100 - 416,000)

Margin of safety= $104,000

Margin of safety ratio= (current sales level - break-even point)/current sales level

Margin of safety ratio= 104,000 / 520,000

Margin of safety ratio= 0.2 = 20%

We appreciate your time. Please revisit us for more reliable answers to any questions you may have. Thanks for stopping by. We strive to provide the best answers for all your questions. See you again soon. We're glad you chose Westonci.ca. Revisit us for updated answers from our knowledgeable team.