Break-Even Units and Sales Revenue: Margin of Safety Dupli-Pro Copy Shop provide
ID: 2579486 • Letter: B
Question
Break-Even Units and Sales Revenue: Margin of Safety
Dupli-Pro Copy Shop provides photocopying service. Next year, Dupli-Pro estimates it will copy 2,800,000 pages at a price of $0.08 each in the coming year. Product costs include:
There is no variable selling expense; fixed selling and administrative expenses total $46,000.
Required:
Note: In your computations that involve the contribution margin ratio, round the ratio to two decimal places.
1. Calculate the break-even point in units.
units
2. Calculate the break-even point in sales revenue.
$
3. Calculate the margin of safety in units for the coming year.
units
4. Calculate the margin of safety in sales revenue for the coming year.
$
5. What if the total selling and administrative expenses are reduced to $38,800? Recalculate the following:
Direct materials $0.015 Direct labor $0.004 Variable overhead $0.001 Total fixed overhead $80,000Explanation / Answer
Selling price per unit = 0.08
Variable cost per unit = 0.015 + 0.004 + 0.001 = 0.02
Fixed costs = 80,000 + 46,000 = 126,000
Contribution margin per unit = Selling price per unit - Variable cost per unit
= 0.08 - 0.02 = 0.06
Contribution margin ratio = Contribution margin per unit / Selling price per unit
= 0.06 / 0.08 = 0.75
1. Break-even point in units = Fixed costs / Contribution margin per unit
= 126,000 / 0.06 = 2,100,000
2. Break even point in sales revenue = Fixed costs / Contribution margin ratio
= 126,000 / 0.75 = 168,000
3. Margin of safety in units = Planned sales in units - Break even sales in units
= 2,800,000 - 2,100,000 = 700,000
4. Margin of safety in safety in sales revenue = Planned sales - Break even sales
= (2,800,000 * 0.08) - 168,000
= 56,000
5. Fixed costs = 80,000 + 38,800 = 118,800
Break-even point in units = Fixed costs / Contribution margin per unit
= 118,800 / 0.06 = 1,980,000
Break even point in sales revenue = Fixed costs / Contribution margin ratio
= 118,800 / 0.75 = 158,400
Margin of safety in units = Planned sales in units - Break even sales in units
= 2,800,000 - 1,980,000 = 820,000
Margin of safety in safety in sales revenue = Planned sales - Break even sales
= (2,800,000 * 0.08) - 158,400
= 65,600
a. Break-even point in units 1,980,000 b. Break-even point in sales revenue 158,400 c. Margin of safety in units for the coming year 820,000 d. Margin of safety in sales revenue for the coming year 65,600