1. Stephanie, Inc. sells its product for $40. The variable costs are $18 per unit. Fixed...
1. Stephanie, Inc. sells its product for $40. The variable costs are $18 per unit. Fixed costs are $16,000. The company is considering the purchase of an automated machine that will result in a $2 reduction in unit variable costs and an increase of $5,000 in fixed costs. Which of the following is true about the break-even point in units?
It will remain unchanged.
It will decrease.
It will increase.
It cannot be determined from the information provided.
2.The following monthly data are available for Coronado Industries which produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $42000; Actual sales for the month of June, 5000 units. How much is the margin of safety for the company for June?
$98000
$147000
$105000
$3500
Homework Answers
Answer 1 - It will Increase
| Normal | Revised | ||
| Selling Price (SP) | 40 | 40 | |
| Variabe cost (VC) | 18 | 16 | |
| Contribution (SP-VC) | 22 | 24 | |
| Fixed Cost (FC) | 16000 | 21000 | |
| BEP in Units | 727 | 875 | Increased |
| Formula = FC / (SP-VC) |
Answer 2 - $147000
| Month - June | ||
| Particular | Amount ($) | Calculation |
| Selling Price (SP) | 42 | Given |
| Variabe cost (VC) | 14 | Given |
| Contribution (SP-VC) | 28 | Given |
| Actual sales (Units) | 5,000 | Given |
| Sales | 210,000 | 42*5000 |
| Variable cost | 70,000 | 14*5000 |
| Contribution | 140,000 | 210000-70000 |
| Fixed Cost (FC) | 42,000 | Given |
| Profit | 98,000 | 140000-42000 |
| Contribution Margin | 67% | 140000/210000*100 |
| Breakeven sales | 63,000 | 42000/67% |
| Margin of Safety (MOS) | 147,000 | 210000-63000 |
| Breakeven sales = Fixed cost / Contribution Margin | ||
| MOS = Current Sales - Breakeven sales |
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