Miller Metal Co. makes a single product that sells for $42.5 per unit. Variable
ID: 2569888 • Letter: M
Question
Miller Metal Co. makes a single product that sells for $42.5 per unit. Variable costs are $27.3 per unit, and fixed costs total $65,055 per month. Required: a. Calculate the number of units that must be sold each month for the firm to break-even. (Do not round intermediate calculations.) Break-even volume 4.28units b. Assume current sales are $414,000. Calculate the margin of safety and the margin of safety ratio. (Round intermediate calculations to the nearest whole number.) Margin of safety Margin of safety ratio C.Calculate operating income if 6,800 units are sold in a month. (Do not round intermediate calculations.)Explanation / Answer
a. BEP in Units = Fixed cost / ( Selling price - Variable cost) = 65055 / ( 42.5 - 27.3) = 65055 / 15.2
= 4280 Units......final answer
b. Margin of safety = Acual sales - BEP sales = 414000 - 181897 = 232103
Margin of safety ratio = 232103 / 414,000 * 100 = 56.06 % ....or 56 %
c . Operating income = 6800 Units * ( 42.5 - 27.3) - 65055 = $ 38305.................final answer
d. Operating income = 7500 Units * ( 45.5 - 27.3) - 65055 - 9500 = $ 61945 ....... final answer
e. Operating income = Origninal + new product = 38305 + 8455 = 46760 ............ final answer
Original product operating income = 6800 Units ( 42.5 - 27.30) - 65055 = 38305
New product operating income = 4400 Units ( 20 - 14) - 17945 = 8455