Question

Felde Bucket Co., a 2,500 units Sales price Variable costs Fixed costs $40 per unit $24 per unit $19,500 What is the contribution margin ratio? (Round answer to decimal places, e.g. 5,275)

Answer 1

Sales price Less: variable cost Contribution margin per unit 40 (24) $ 16 Margin of Safety Ratio (Actual sales- Break even Point) / Actual sales ($100,000-$48,750)/$100,000 51.25% Contribution Margin Ratio CM ratio Contribution/sales $16/$40 the company wishes to increase total contribution by 30% than they need to increase the sales also by 30% as the sales price, variable cost and contribution margin per unit will also vary in the same ratio. Current sale of units Sale of units after increase of 30%[2,500+(2,500*30%)] Increase in sales units required (3,250-2,500) Total increase in sales required (750 $40) 40% 2,500 units 3,250 units 750 units Break even point (in dollars Break even point (in dollars) fixed cost/CM ratio 19,500/.40 $ 48,750 $ 30,000 Margin of Safety in dollars Actual sales Break even Point $(2,500*$40)-$A8,750 To check that by sale of 3,250 units how much contribution margin will increase Contribution Margin at sale of 2,500 units (2,500 $16) Contribution Margin at sale of 3,250 units (3,250*$16) Increase in contribution Margin Increase as % of contribution at 2,500 units ($12,000/$40,000) 40,000 $52,000 12,000 $51,250 3096