Question

Information concerning a product produced by Ender Company appears here: Sales price per unit $ 200 Variable cost per unit $ 80 Total annual fixed manufacturing and operating costs $ 600,000 Required Determine the following: Contribution margin per unit. Number of units that Ender must sell to break even. Sales level in units that Ender must reach to earn a profit of $240,000. Determine the margin of safety in units, sales dollars, and as a percentage.

Answer 1

Answer and Explanation:

The computation is shown below:

1. The contribution margin per unit is  

As we know that

Contribution margin per unit = Sale Price - Variable Cost

= $200 - $80

= $120

2. The break even sales in units is  

= Fixed Cost ÷ Contribution margin per unit

= $600,000 ÷ $120

= 5,000 units

3. The sales units that earned $240,000 is

Required Sales (in units) = (Fixed Cost + Desired Profit) ÷ Contribution Margin Per unit

= ($600,000 + $240,000) ÷ $120

= 7,000 units

4. The margin of safety  in units, sales dollars & percentage is  

The Margin of Safety (in Units)

= Sales - Break even Sales

= (7,000 - 5,000) units

= 2,000 units

The Margin of Safety (in dollars)

= Margin of Safety (in units) × Sale Price

= 2,000 units × $200

= $400,000

Margin Of Safety (in percentage) is

= (Actual Sales - Break even sales) ÷ Actual Sales

= (7,000 units -5,000 units)  ÷  7,000 units

= 28.57%