Break-Even Units and Sales Revenue: Margin of Safety Dupli-Pro Copy Shop provide
ID: 341221 • 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 2,940,000 pages at a price of $0.06 each in the coming year. Product costs include: Direct materials $0.009 Direct labor $0.003 Variable overhead $0.001 Total fixed overhead $80,960 There is no variable selling expense; fixed selling and administrative expenses total $45,000. Required: In your computations that involve the contribution margin ratio, do not round the ratio.
1. Calculate the break-even point in units.
2680000 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 $29,960?
Recalculate the following:
a. Break-even point in units
b. Break-even point in sales revenue
$
c. Margin of safety in units for the coming year
units
d. Margin of safety in sales revenue for the coming year
$
Explanation / Answer
1 Break-even point in units=(80960+45000)/(0.06-0.009-0.003-0.001)= 2680000 2 Break-even point in sales revenue=2680000*0.06= $160800 3 Margin of safety in units =2940000-2680000= 260000 4 Margin of safety in sales revenue = 260000*0.06= $15600 5a Break-even point in units=(80960+29960)/(0.06-0.009-0.003-0.001)= 2360000 b Break-even point in sales revenue=2360000*0.06= $141600 c Margin of safety in units =2940000-2360000= 580000 d Margin of safety in sales revenue = 580000*0.06= $34800