Computation of contribution margin Ratio, BEP, and margin of Safety.
Aunt Pitty's Pies is a small bakery that sells its products to local restaurants and supermarkets. The Bakery's most recent income statement is as follows:
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Sales
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$78,000
|
|
Variable Costs
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$24,960
|
|
Contribution Margin
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$53,040
|
|
Fixed costs
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$29,240
|
|
Net Income
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$23,800
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1. What is Aunt Pitty's Contribution Margin Ratio?
2. What is Aunt Pitty's breakeven level of sales revenues?
3. What is auto Pitty's Margin of Safety in the most recent year?
4. Assume that Aunt Pitty's is considering investing in new machinery that will decrease variable costs per unit by 10%. In order to achieve the savings, the bakery's fixed costs would increase by $6,360. What will happen to the breakeven level of sales revenues? You must give a specific numerical answer.
(NOTE: The Sales price will NOT change).