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# Contribution margin, break-even and margin of safety

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In the month of June, Paula's Beauty Salon gave 3,500 haircuts, shampoos, and permanents at an average price of \$30. During the month, fixed costs were \$16,800 and variable costs were 80% of sales.

1. Determine the contibution margin in dollars, per unit and as a ratio.
2. Using the contribution margin technique, compute the break-even point in dollars and in units.
3. Compute the margin of safety in dollars and as a ratio.

##### Solution Summary

Contribution margin, break-even and margin of safety calculations done.

##### Solution Preview

In the month of June, Paula's Beauty Salon gave 3,500 haircuts, shampoos, and permanents at an average price of \$30.  During the month, fixed costs were \$16,800 and variable costs were 80% of sales.

1.  Determine the contibution margin in dollars per unit and as a ratio

Variable cost ratio= 80%
Current Units = 3,500
Selling Price= \$30 per unit
Variable cost= \$24 per unit =\$30. x 80.%
Fixed Cost= \$16,800

Contribution Margin per unit

Contribution margin per unit = Selling price per unit - variable cost per unit

Selling Price= \$30 per unit
Variable cost= \$24 per unit
Therefore Contribution margin per unit= \$6 per unit =\$30.-\$24.

Contribution margin per unit= \$6 ...

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