Asked by Dolly Barboza on Jul 03, 2024
Verified
A firm provides the following sales data:
Required:
(a)Calculate the break-even point in dollar sales.
(b)Calculate the margin of safety in dollar sales.
Break-Even Point
The production level or sales volume at which total revenues equal total costs, resulting in neither profit nor loss.
Margin of Safety
The difference between actual sales and the break-even point, indicating the level of risk in not covering fixed costs.
- Engage with the concept and evaluative techniques for finding the break-even point in unit volume and financial sales.
- Assess the margin of safety both in dollars and percentage terms to gauge risk in sales forecasts.
Verified Answer
TS
Tanjena SarkerJul 04, 2024
Final Answer :
(a)Contribution margin ratio = ($16 - 10)/$16 = 37.5%
Break-even point in dollar sales = $12,000/0.375 = $32,000‾\underline{\text{\$32,000}}$32,000
(b)Margin of safety in dollars = ($5,000 ∗ $16)- $32,000 = $48,000‾\underline{\text{\$48,000}}$48,000
Break-even point in dollar sales = $12,000/0.375 = $32,000‾\underline{\text{\$32,000}}$32,000
(b)Margin of safety in dollars = ($5,000 ∗ $16)- $32,000 = $48,000‾\underline{\text{\$48,000}}$48,000
Learning Objectives
- Engage with the concept and evaluative techniques for finding the break-even point in unit volume and financial sales.
- Assess the margin of safety both in dollars and percentage terms to gauge risk in sales forecasts.