Margin of Safety
a. If Fama Company, with a break-even point at $324,000 of sales, has actual sales of $540,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? Round the percentage to the nearest whole number.
1. $
2. %
b. If the margin of safety for Watkins Company was 20%, fixed costs were $1,172,800, and variable costs were 80% of sales, what was the amount of actual sales (dollars)?
(Hint: Determine the break-even in sales dollars first.)
$
#2
Operating Leverage
Varner Inc. and King Inc. have the following operating data:
|
Varner Inc. |
King Inc. |
| Sales |
$256,500 |
|
$684,000 |
|
| Variable costs |
102,900 |
|
410,400 |
| Contribution margin |
$153,600 |
|
$273,600 |
|
| Fixed costs |
89,600 |
|
102,600 |
| Income from operations |
$64,000 |
|
$171,000 |
|
a. Compute the operating leverage for Varner Inc. and King Inc. If required, round to one decimal place.
b. How much would income from operations increase for each company if the sales of each increased by 15%? If required, round answers to nearest whole number.
|
Dollars |
Percentage |
| Varner Inc. |
$ |
|
% |
| King Inc. |
$ |
|
%
|
#3
Sales Mix and Break-Even Sales
New Wave Technology Inc. manufactures and sells two products, MP3 players and satellite radios. The fixed costs are $174,400, and the sales mix is 80% MP3 players and 20% satellite radios. The unit selling price and the unit variable cost for each product are as follows:
| Products |
Unit Selling Price |
Unit Variable Cost |
| MP3 players |
$40 |
|
$30 |
|
| Satellite radios |
100 |
|
60 |
|
a. Compute the break-even sales (units) for both products combined.
units
b. How many units of each product, MP3 players and satellite radios, would be sold at the break-even point?
| MP3 players |
units |
| Satellite radios |
units |