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Last month, Laredo Company sold 580 units for $90 each. During the month, fixed costs were...

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Accounting

Last month, Laredo Company sold 580 units for $90 each. Duringthe month, fixed costs were $3,330 and variable costs were $9 perunit.

Required:

1. Determine the unit contribution margin andcontribution margin ratio.

2. Calculate the break-even point in units andsales dollars.

3. Compute Laredo’s margin of safety in unitsand as a percentage of sales.

Answer & Explanation Solved by verified expert
4.4 Ratings (748 Votes)

Requirement 1

Contribution margin per unit $                     81.00
Contribution margin ratio (81/90) 90%

.

Requirement 2

Break Even sales in units                                41
Break Even sales revenue $               3,700.00

.

Requirement 3

Margin of safety in units                             539
Margin of safety in dollar $             48,500.00

Working

A Sales price per unit $                     90.00
B Variable cost per unit $                        9.00
C=A-B Contribution margin per unit $                     81.00
Contribution margin ratio (81/90) 90%
D Fixed cost $               3,330.00
E=D/C Break Even sales in units                                41
F=E x A Break Even sales revenue $               3,700.00

.

Actual sales in units 580
Break even units 41
Margin of safety in units                             539
Margin of safety in dollar [(580 x 90)-3700] $             48,500.00

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