The section of Waterways that produces controllers for the company provided the
ID: 2456989 • Letter: T
Question
The section of Waterways that produces controllers for the company provided the following information.
Sales for month of February4,000Variable manufacturing cost per unit$9.75Sales price per unit$42.50Fixed manufacturing overhead cost (per month for controllers)$81,000Variable selling and administrative expenses per unit$3.00Fixed selling and administrative expenses (per month for controllers)$13,122
Using this information for the controllers, determine the contribution margin ratio, the degree of operating leverage, the break-even point in dollars, and the margin of safety ratio for Waterways Corporation on this product.
Explanation / Answer
Answer
Contribution margin ratio= ((sales- variable cost)/sales)*100
sales = 4000*$42.50=170000
variable cost = variable manufacturing cost per unit 9.75+ fixed selling and administrative cost 13122+ variable selling and administrative cost per unit$3
4000*9.75=39000
4000*3=12000
13122+12000+39000=64122
=((170000-64122)/170000)*100= 62.28%
Degrees of operating leverage= (sales-variable cost)/profit
profit=total sales-(variable cost+ fixed cost)
170000-(64122+81000)=24878
=(170000-64122)/24878=4.25
Break-even point in dollars=total fixed cost/contibution margin
=81000/62.28=$1300.578
Margin of safety=((sales units- break-even point in units)/sales units)100
BEP in units =total fixed cost/selling cost per unit- variable cost per unit
variable cost per unit=64122/4000=16.0305
=81000/(42.50-16.03)=3060.06
=((4000-3060.06)/4000)*100=23.498