Question: Penny Company offers two products. At present, the following represents the usual results of a month's operations:
Product A Product B
Per Unit Per Unit Combined
Sales $120,000 $1.20 $80,000 $0.80 $200,000
Variable costs 60,000 0.60 60,000 0.60 120,000
Contribution margin $60,000 0.60 $20,000 $0.20 80,000
Fixed costs 50,000
Operating profit $30,000
Required:
Q1. Find the break-even point in dollars.
Q2. Find the margin of safety in dollars.
Q3. The company is considering decreasing product A's unit sales to 80,000 and increasing product B's unit sales to 180,000, leaving unchanged the selling price per unit, variable cost per unit, and total fixed costs. Would you advise adopting this plan?
Q4. Refer to (3) above. Under the new plan, find the break-even point in dollars.
Q5. Under the new plan in (4) above, find the margin of safety in dollars.