Contribution Margin Concepts The following information is taken from the 2007 records of Navajo Art Shop.
Fixed Variable Total
- Goods sold $300,000
Gross profit 450,000
Labor $160,000 60,000
Supplies 2,000 5,000
Utilities 12,000 13,000
Rent 24,000 —
Advertising 6,000 24,500
Miscellaneous 6,000 10,000
Total costs $210,000 $112,500 (322,500)
Net income $127,500
a. Determine the annual break-even dollar sales volume.
b. Determine the current margin of safety in dollars.
c. What is the annual break-even dollar sales volume if management makes a decision that increases fixed costs by $35,000?
The solution examines a break even analysis and a current margin of safety. The annual break-even dollar sales volume if management makes a decision to increased fixed cost is determined.