Presque Isle Seating Co., a manufacturer of chairs, had the following data for 2
ID: 2359872 • Letter: P
Question
Presque Isle Seating Co., a manufacturer of chairs, had the following data for 2011:Sales 2,900 units
Sales price $50 per unit
Variable costs $20 per unit
Fixed costs $18,420
Compute the following: (Do not round intermediate calculations. Round ratios to 2 decimal places e.g. 15.75% and all other answers to 0 decimal places, e.g. 125.)
a. Contribution margin ratio %
b. Break-even point in dollars $
c. Margin of safety in dollars $
Margin of safety ratio %
d. If the company wishes to increase its total dollar contribution margin by 41% in 2012, by how much will it need to increase its sales if all other factors remain constant?
Explanation / Answer
a. Contribution margin ratio = (sales price – variable costs)/sales price = (50 – 20)/50 = 0.6 = 60.00%
b. Break-even point in dollars = fixed costs/contribution margin ratio = 18,420/.6 = $30,700
c. Margin of safety in dollars = sales – break-even point = 2,900*50 – 30,700 = $114,300
d. Margin of safety ratio = margin of safety/sales = 114,300/(2,900*50) = 0.7883 = 78.83%
e. contribution margin = 2,900*50*.6 = 87,000
41% of 87,000 = 35,670
For a contribution margin of 87,000 + 35,670 = 122,670, you would need sales of 122,670/.6 = 204,450.