Question:
BREAK-EVEN POINT, TARGETED PROFIT, MARGIN OF SAFETY
Cutlass Company's projected profit for the coming year is as follows:
|
|
Total
|
Per Unit
|
|
Sales
|
$200,000
|
$20
|
|
Less: Variable expenses
|
120,000
|
12
|
|
Contribution margin
|
$ 80,000
|
$ 8
|
|
Less: Fixed expenses
|
64,000
|
|
|
Operating income
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$ 16,000
|
|
Required:
1. Compute the break-even point in units.
2. How many units must be sold to earn a profit of $30,000?
3. Compute the contribution margin ratio. Using that ratio, compute the additional profit that Cutlass would earn if sales were $25,000 more than expected.
4. Suppose Cutlass would like to earn operating income equal to 20 percent of sales revenue. How many units must be sold for this goal to be realized? Prepare an income statement to prove your answer.
5. For the projected level of sales, compute the margin of safety.