Homework Answers
(1)
total variable costs per bottle = direct material cost + direct labor cost + manufacturing overhead cost + sales commission
= $19 + $11 + ($21.50 x 0.5) + $5.25
= $46
where,
direct labor hours per bottle = $11/$22 = 0.5
Contribution margin ratio = ($100 - $46)/$100 = 54%
(2)
fixed expenses per year = ($153200 + $34000 + $25000) x 12 = $2546400
contribution margin per unit = $100 - $46 = $54
Break even point (unit sales) = fixed expenses/contribution margin per unit
= $2546400/$54
= 47156 units
Break even point (dollar sales) = fixed expenses/contribution margin ratio
= $2546400/54%
= $4715556
(3)
margin of safety (in dollars) = total sales - break even sales
= $8,500,000 - $4,715,556
= $3,784,444
margin of safety (as a % of budgeted sales) = margin of safety in dollars/budgeted sales
= $3,784,444/$8,500,000
= 44.52%
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