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Break-Even Sales, Margin of Safety & Unit Sales

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1.) For the current year ending January 31, Bell Company expects fixed costs of $178,500 and a unit variable cost of
$41.50. For the coming year, a new wage contract will increase the unit variable cost to $45. The selling price of $50 per unit is expected to remain the same.

a. Compute the break-even sales (units) for the current year.
b. Compute the anticipated break-even sales (units) for the coming year assuming the new wage contract is signed.

2.)A company with a break-even point at $900,000 in sales revenue and had fixed costs of $225,000. When actual sales were $1,000,000 variable costs were $750,000. Determine
(a) the margin of safety expressed in dollars,
(b) the margin of safety expressed as a percentage of sales,
(c) the contribution margin ratio (d) the operating income.

3.) Hitch Company sells Products S and T and has made the following estimates for the coming year:

Product Unit Selling Price Unit Variable Cost Sales Mix
S $30 $24 60%
T 70 56 40%

Fixed costs are estimated at $202,400. Determine
(a) the estimated sales in units of the overall product necessary to reach the break-even point for the coming year,
(b) the estimated number of units of each product necessary to be sold to reach the break-even point for the coming year, and
(c) the estimated sales in units of the overall product necessary to realize and operating income of $119,600 for the coming year.

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Solution Summary

Word and Excel files give the calculations to answer 3 multi-part managerial accounting questions.

Solution provided by:
Manal Elkhoshkhany, MBA
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
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