Break-Even Point and Margin of Safety
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Embleton Company estimates that variable costs will be 40% of sales, and fixed costs will total $900, 000. The selling price of the product is $5.
a. Compute the break-even point in (1) units and (2) dollars.
b. Computer the margin of safety in (1) dollars and (2) as a ratio, assuming actual sales are $2 million.
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The solution explains the calculation of break-even point and margin of safety. The margin of safety in dollars and as a ratio are determined.
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a. Compute the break-even point in (1) units and (2) dollars.1
(2) In dollars the breakeven point = Fixed cost/Contribution margin ratio
Since the variable cost is 40% of sales, the ...
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