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Determine Jensen's margin of safety expressed as a percentage

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1. Jensen Company makes a product that sells for $38 per unit. The company pays $16 per unit for the variable costs of the product and incurs annual fixed costs of $176,000. Jensen expects to sell 21,000 units of product.

Required:
Determine Jensen's margin of safety expressed as a percentage.

Margin of safety %

Exercise 3-13A Cost-volume-profit relationship [LO 1, 2, 4, 6]

2. Feskin Corporation is a manufacturing company that makes small electric motors it sells for $36 per unit. The variable costs of production are $22 per motor, and annual fixed costs of production are $196,000.

Required:
a. How many units of product must Feskin make and sell to break even?

Sales volume units

b. How many units of product must Feskin make and sell to earn a $56,000 profit?

Sales volume units

c. The marketing manager believes that sales would increase dramatically if the price were reduced to $34 per unit. How many units of product must Feskin make and sell to earn a $56,000 profit, if the sales price is set at $34 per unit?

Sales volume units

Problem 3-23A Comprehensive CVP analysis [LO 2, 4, 6, 7, 8]

3. Borysko Company makes and sells products with variable costs of $47 each. Borysko incurs annual fixed costs of $22,400. The current sales price is $63.

Required:
The following requirements are interdependent. For example, the $4,800 desired profit introduced in Part c also applies to subsequent parts. Likewise, the $55 sales price introduced in Part d applies to the subsequent parts.

a. Determine the contribution margin per unit.

Contribution margin per unit $

b-1. Determine the break-even point in units and in dollars.

Break-even point in units

Break-even point in dollars $

________________________________________

b-2. Prepare an income statement using the contribution margin format. (Leave no cells blank - be certain to enter "0" wherever required.

Borysko Company
Income Statement

$

________________________________________

________________________________________
Net income $

________________________________________________________________________________
________________________________________

c-1.

Suppose that Borysko desires to earn a $4,800 profit. Determine the sales volume in units and dollars required to earn the desired profit.

Sales volume in units

Sales volume in dollars $

________________________________________

c-2. Prepare an income statement using the contribution margin format. (Amounts to be deducted and loss amounts should be indicated with a minus sign.)

Borysko Company
Income Statement

$

________________________________________

________________________________________

$

________________________________________________________________________________
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d-1. If the sales price drops to $55 per unit, what level of sales is required to earn the desired profit? Express your answer in units and dollars.

Sales volume in units

Sales volume in dollars $

________________________________________

d-2

Prepare an income statement using the contribution margin format. (Amounts to be deducted and loss amounts should be indicated with a minus sign. )

Borysko Company
Income Statement

$

________________________________________

________________________________________

$

________________________________________________________________________________
________________________________________

e-1. If fixed costs drop to $16,800, what level of sales is required to earn the desired profit? Express your answer in units and dollars.

Sales volume in units

Sales volume in dollars $

________________________________________

e-2. Prepare an income statement using the contribution margin format. (Amounts to be deducted and loss amounts should be indicated with a minus sign.

Borysko Company
Income Statement

$

________________________________________

________________________________________

$

________________________________________________________________________________
________________________________________

f-1.

If variable cost drops to $39 per unit, what level of sales is required to earn the desired profit? Express your answer in units and dollars.

Sales volume in units

Sales volume in dollars $

________________________________________

f-2. Prepare an income statement using the contribution margin format. (Amounts to be deducted and loss amounts should be indicated with a minus sign.

Borysko Company
Income Statement

$

________________________________________

________________________________________

$

________________________________________________________________________________
________________________________________

g. Assume that Borysko concludes that it can sell 1,350 units of product for $55 each. Recall that variable costs are $39 each and fixed costs are $16,800. Compute the margin of safety in units and dollars and as a percentage. (Round your answers to 1 decimal place.)

Margin of safety in units

Margin of safety in dollars $

Margin of safety %

________________________________________

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Solution Summary

The expert determines Jensen's margin of safety expressed as a percentages.

$2.19