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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.

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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

    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 ...

    Solution Summary

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

    $2.19

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