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6 December, 03:17

Information concerning a product produced by Franklin Company appears as follows: Sales price per unit $ 171 Variable cost per unit $ 91 Total annual fixed manufacturing and operating costs $ 528,000

Required:

a. Contribution margin per unit.

b. Number of units that Franklin must sell to break even.

c. Sales level in units that Franklin must reach to earn a profit of $272,000.

d. Determine the margin of safety in units, sales dollars, and as a percentage.

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  1. 6 December, 03:31
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    a. The Contribution margin per unit is $80

    b. The Number of units that Franklin must sell to break even is 6,600 units

    c. The Sales level in units that Franklin must reach to earn a profit of $272,000 is 10,000 units

    d. The margin of safety in units is 3,400 units

    The margin of safety in sales dollars is $581,400

    The margin of safety as a percentage is 34%

    Explanation:

    a. In order to calculate the Contribution margin per unit we would have to use the following formula:

    Contribution margin per unit = Sale Price - Variable Cost

    = $171 - $91

    = $80

    b. To calculate the Number of units that Franklin must sell to break even we would have to use the following formula:

    Break even sales (in units) = Fixed Cost / Contribution margin per unit

    = $ 528,000 / $80

    = 6,600 units

    c. To calculate the Sales level in units we would have to use the following formula:

    Sales level in units = (Fixed Cost + Desired Profit) / Contribution Margin Per unit

    = ($ 528,000+$272,000) / $80

    = 10,000 units

    d. To calculate the margin of safety in units, sales dollars, and as a percentage we would have to use the following formula:

    Margin of Safety (in Units) = Sales - Break even Sales

    = (10,000 - 6,600) units

    = 3,400 units

    Margin of Safety (in $) = Margin of Safety (in units) x Sale Price

    = 3,400 units * $171

    = $581,400

    Margin Of Safety (in percentage) = (Actual Sales - Break even sales) / Actual Sales

    = (10,000 units - 6,600 units) / 10,000 units

    = 34%
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