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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

\$

________________________________________

________________________________________

\$

________________________________________________________________________________
________________________________________

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 %

________________________________________

#### Solution Summary

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

\$2.19