1. The calculation of the break-even point in units for Comer Company is as follows:
= Fixed costs/Contribution margin per unit
= 111,500 units ($1,273,330/$11.42)
2. The calculation of the margin of safety in units for Comer Company is as follows:
= current sales minus the breakeven point sales units
= 128,400 units (239,900 - 111,500)
3. The calculation of the margin of safety in dollars for Comer Company is as follows:
= total budgeted sales revenue and break-even sales in dollars
= $2,051,832 (128,400 x $15.98)
The break-even point is the point at which the total revenue equals total costs (including variable and fixed costs).
At the break-even point, both in units and in dollars, the organization records no profit or loss.
The margin of safety shows the total number of sales (in units or dollars) above the breakeven point.
Selling price per string = $15.98
Variable costs:
Direct materials $1.87
Direct labor 1.70
Variable factory overhead 0.57
Variable selling expense 0.42
Total variable cost per unit = $4.56 ($1.87 + $1.70 + $0.57 + $0.42)
Contribution margin per unit = $11.42
Contribution margin ratio = 71.46% ($11.42/$15.98 x 100)
Fixed manufacturing cost totals $745,726 per year
Administrative cost (all fixed) totals $527,604
Total fixed costs = $1,273,330 ($745,726 + $527,604)
Expected sales units next year = 239,900 strings
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