Question

In the month of June, Jose Hebert’s Beauty Salon gave 3,800 haircuts, shampoos, and permanents at an average price of $40. During the month, fixed costs were $16,500 and variable costs were 75% of sales.

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Determine the contribution margin in dollars, per unit and as a ratio. (Round contribution margin per unit and contribution margin ratio to 2 decimal places, e.g. 5.25 & 10.50.)

Contribution margin		$
Contribution margin per unit		$
Contribution margin ratio			%

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Using the contribution margin technique, compute the break-even point in dollars and in units. (Round answers to 0 decimal places, e.g. 1,225.)

Break-even point		$
Break-even point			units

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Compute the margin of safety in dollars and as a ratio. (Round answers to 0 decimal places, e.g. 1,225.)

Margin of safety		$
Margin of safety ratio			%

Answer 1

Variable cost per unit = $40 X 75% = $30

Contribution margin per unit = $40 - $30 = $10

Contribution margin = $10 X 3,800 = $38,000

Contribution margin ratio = 100% - 75% = 25%

Breakeven point in dollars = $16,500 / 25% = $66,000

Breakeven point in units = $16,500 / $10 = 1,650

Total sales = $40 X 3,800 = $152,000

Margin of safety = $152,000 - $66,000 = $86,000

Margin of safety in % = $86,000 / $152,000 = 57%