Answer:
a. It should record revenue on a monthly basis
The Revenue Recognition principle in accounting posits that revenue should only be recognized after the goods and services that the revenue was paid for, have been delivered.
Seacoast Magazine has not delivered the magazine and will do so monthly for 18 months. It should therefore apportion profits to those months and only recognize the profit after the magazines are delivered.
b. Amount of revenue for 8 issues:
= 36/ 18 issues * 8 issues
= 2 * 8
= $16
Fixed expenses are $17,000 per month. The company is currently selling 800 units per month. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $5 per unit. In exchange, the sales staff would accept a decrease in their salaries of $6,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 200 units. What should be the overall effect on the company's monthly net operating income of this change?
Answer:
There is a cost-saving of $1,000 per month as a result of the change. This cost-saving increases the monthly net operating income by $1,000.
Explanation:
a) Data and Calculations:
Fixed monthly expenses = $17,000
Current sales units per month = 800
Proposed sales commission per unit = $5
Decrease in salaries per month = $6,000
Increase in sales units per month = 200
Change
Before After Difference
Fixed monthly expenses $17,000 $11,000 $6,000
Variable cost per month 0 5,000 -5,000
Total cost per month $17,000 $16,000 $1,000
Sales units per month 800 1,000 200 units
b) The effect on the company's monthly net operating income is a reduction in the total cost per month by $1,000. There is also an increase in the units sold per month by 200 units. If the selling price is determined, the net operating income will also increase by the product of the contribution margin per unit and 200.
Beasley, Inc., reports the following amounts in its December 31, 2021, income statement.
Sales revenue $ 310,000
Income tax expense $ 39,000
Interest expense 12,000
Cost of goods sold 125,000
Salaries expense 36,000
Advertising expense 23,000
Utilities expense 42,000
Prepare a multiple-step income statement.
Answer:
$33,000
Explanation:
Preparation of a multiple-step income statement.
Beasley, Inc. Multiple-step Income Statement For the Year Ended December 31, 2021
Sales Revenue$310,000
Less Cost of goods sold ($125,000)
Gross Profit $185,000
($310,000-$125,000)
Salaries expense $36,000
Advertising expense $23,000
Utilities expense $42,000
Less Total Operating Expenses ($101,000)
($36,000+$23,000+$42,000)
Operating Income $84,000
($185,000-$101,000)
Less Interest Expense ($12,000)
Income Before Income Taxes $72,000
($84,000-$12,000)
Less Income Tax Expense ($39,000)
Net Income $33,000
($72,000-$39,000)
Therefore multiple-step income statement is $33,000
Payback comparisons Colorado Cleaning has a 5-year maximum acceptable payback period. The firm is considering the purchase of a new washing machine and must choose between two alternative ones. The first machine requires an initial investment of $25,000 and generates annual after-tax cash inflows of $6,500 for each of the next 8 years. The second machine requires an initial investment of $75,000 and provides an annual cash inflow after taxes of $9,500 for 15 years.
a. Determine the payback period for each machine.
b. Comment on the acceptability of the machines, assuming that they are independent projects.
c. Which machine should the firm accept? Why?
d. Do the machines in this problem illustrate any of the weaknesses of using payback? Discuss.
Answer:
determine The pay back period for eachmachine
Cheetah Copy purchased a new copy machine. The new machine cost $100,000 including installation. The company estimates the equipment will have a residual value of $25,000. Cheetah Copy also estimates it will use the machine for four years or about 8,000 total hours. Actual use per year was as follows:
Year Hours Used
1 3,000
2 2,000
3 1,200
4 2,800
Required:
Prepare a depreciation schedule for four years using the straight-line method.
Answer:
Results are below.
Explanation:
Giving the following information:
Purchase price= $100,000
Salvage value= $25,000
Useful life= 4 years
To calculate the annual depreciation, we need to use the following formula:
Annual depreciation= (original cost - salvage value)/estimated life (years)
Annual depreciation= (100,000 - 25,000) / 4
Annual depreciation= $18,750
Year 1:
Annual depreciation= 18,750
Accumulated depreciation= 18,750
Book value= 100,000 - 18,750= 81,250
Year 2:
Annual depreciation= 18,750
Accumulated depreciation= 18,750*2= 37,500
Book value= 100,000 - 37,500= 62,500
Year 3:
Annual depreciation= 18,750
Accumulated depreciation= 18,750*3= 56,250
Book value= 100,000 - 56,250= 43,750
Year 4:
Annual depreciation= 18,750
Accumulated depreciation= 18,750*4= 75,000
Book value= 100,000 - 75,000= 25,000
If contribution margin is $220000, sales is $400000, and net income is $180000, then variable and fixed expenses are:________
Answer:
Total variable cost= $180,000
Fixed costs= $40,000
Explanation:
Giving the following information:
Contribution margin= $220,000
Sales= $400,000
Net income= $180,000
The contribution margin formula is as follow:
Total Contribution margin= sales - total variable cost
Therefore, we need to isolate the total variable cost and replace the variable with the data:
Total variable cost= sales - total contribution margin
Total variable cost= 400,000 - 220,000
Total variable cost= $180,000
Finally, the fixed costs:
Fixed costs= total contribution margin - net income
Fixed costs= 220,000 - 180,000
Fixed costs= $40,000
The following data relate to direct materials for the month for the Hodge Wax Company: The standard costs for the work done was 5,900 pounds of wax at $9.50 per pound. The actual costs were 6,300 pounds at $9 per pound. What is the direct materials efficiency variance
Answer: $3800 U
Explanation:
The direct material efficiency variance will be calculated as follows:
Direct material efficiency variance = (Standard quantity - Actual quantity) × Standard price of material
= (5900 - 6300) × 9.50
= 400 × 9.50
= $3800 U
Therefore, the direct material efficiency variance is $3800 Unfavorable.
Peterson Company estimates that overhead costs for the next year will be $6,520,000 for indirect labor and $550,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 140,000 machine hours are planned for this next year, what is the company's plantwide overhead rate
Answer:
$50.50 per machine-hour
Explanation:
The computation of the company's plantwide overhead rate is shown below:
Estimated Manufacturing Overhead = Estimated Indirect Labor + Estimated Factory Utilities
= $6,520,000 + $550,000
= $7,070,000
and,
Expected Machine-hours = 140,000
So,
Plantwide Overhear Rate = Estimated Manufacturing Overhead ÷ Expected Machine-hours
= $7,070,000 ÷ 140,000
= $50.50 per machine-hour
Whose unemployment rates are commonly higher in the U.S. economy: whites, nonwhites, young, middle aged, college graduates, or high school graduates?
A. high school graduates
B. young
C. middle aged
Answer:
Non whites, young and high school gradates.
Explanation:
The US unemployment rate is about 5.9% and has decreased form 6.9% in 2020. Most of unemployment people are the youth and non whites and school pass outs.Nichols Company uses the percentage of receivables method for recording bad debts expense. The month-end accounts receivable balance is $250,000 and credit sales during the month were $1,000,000. Management estimates that 4% of accounts receivable will be uncollectible. The Allowance for Doubtful Accounts has a credit balance of $2,500 before adjustment. The adjusting entry that Nichols must make includes: a. a credit to the allowance for $7,500. b. a credit to the allowance for $30,000. c. a debit to bad debt expense for $10,000. d. a debit to bad debt expense for $40,000.
Answer: a. a credit to the allowance for $7,500
Explanation:
Estimated Bad Debt = Balance on Account receivable x bad Debt loss rate = $250,000 x 4% = $10,000
Allowance for doubtful accounts with a credit balance of $2,500
Allowance for Bad debts expense =Estimated Bad Debt - Credit balance Allowance for doubtful accounts = $10,000 - $2,500 = $7,500
Account titles and explanation Debit Credit
Bad Debt Expense $7,500
Allowance for Doubtful Accounts $7,500
Stock Z is trading at $50 today. In one year, the value will go either up to $62.50 or down to $40. A call option on Z with exactly one year to expiration has a strike price of $55. Inflation is high, so the interest rate is 10% per year. Find the delta of the call option using binomial approach. a. 0.25 b. 0.67 c. 1.05 d. 0.33
Answer:
0.33
Explanation:
Delta = (Cu – Cd)/(Su – Sd)Cu
= 62.50 – 55 = 7.50
Cd = 0
Delta = (7.50 – 0)/(62.50 – 40)
= 0.33
Flagstaff Company has budgeted production units of 9,800 for July and 10,000 for August. The direct labor requirement per unit is 0.40 hours. Labor is paid at the rate of $20 per hour. The total cost of direct labor budgeted for the month of August is: Multiple Choice $78,400. $4,000. $80,000. $3,920. $158,400.
Answer: $80,000
Explanation:
There are 10,000 units budgeted for August.
The number of hours it takes to complete a single unit is 0.40 hours.
Each hour is going to cost $20.
Budgeted direct labor for August is:
= Units budgeted * Number of hours required per unit * Cost of labor
= 10,000 * 0.40 * 20
= $80,000
Hernandez Company had the following transactions during 2020, its first year in business:
January 2 Issued 42,000 shares of $15 par common stock for $36 per share.
April 3 Issued 8,000 shares of $70 par preferred stock for $97 per share.
October 6 Purchased 2,000 shares of treasury stock for $29 per share.
December 9 Reissued 110 shares of treasury stock for $35 per share.
Question Completion:
Prepare Journal Entries.
Answer:
Hernandez Company
Journal Entries:
January 2 Debit Cash $1,512,000
Credit Common stock $630,000
Credit Additional Paid-in Capital-Common stock $882,000
To record the issuance of 42,000 shares of $15 par common stock for $36 per share.
April 3 Debit Cash $ 776,000
Credit Preferred stock $560,000
Credit Additional Paid-in Capital-Preferred stock $216,000
To record the issuance of 8,000 shares of $70 par preferred stock for $97 per share.
October 6 Debit Treasury Stock $30,000
Debit Additional Paid-in Capital-Common stock $28,000
Credit Cash $58,000
To record the repurchase of 2,000 shares of treasury stock for $29 per share.
December 9 Debit Cash $3,850
Credit Treasury stock $1,650
Credit Additional Paid-in Capital-Common stock $2,200
To record the reissuance of 110 shares of treasury stock for $35 per share.
Explanation:
a) Data and Analysis:
January 2 Cash $1,512,000 Common stock $630,000 Additional Paid-in Capital-Common stock $882,000
issuance of 42,000 shares of $15 par common stock for $36 per share.
April 3 Cash $ 776,000 Preferred stock $560,000 Additional Paid-in Capital-Preferred stock $216,000
issuance of 8,000 shares of $70 par preferred stock for $97 per share.
October 6 Treasury Stock $30,000 Additional Paid-in Capital-Common stock $28,000 Cash $58,000
repurchase of 2,000 shares of treasury stock for $29 per share.
December 9 Cash $3,850 Treasury stock $1,650 Additional Paid-in Capital-Common stock $2,200
re-issue of 110 shares of treasury stock for $35 per share.
Because the statement of cash flows provides information about an organization's operating profitability and use of operating cash flow, analysis of the statement of cash flows can provide information about the financial viability of the organization.
a. True
b. False
Answer:
a. True
Explanation:
A statement of cash flows is also known as cash flow statement and it is a financial statement which is used to illustrate how changes in income and various account of the balance sheet affect cash and cash equivalents.
The statement of cash flows is also used by financial experts or accountants to breakdown the cash-flow analysis into;
1. Cash-flow from operating activities: it represents cash-flow and transactions from operational business activities such as employee salary, sales of goods etc.
2. Cash-flow from investing activities: it represents the cash flow from investment such as proceeds from the sale of plant, equipments etc.
3. Cash-flow from financing activities: it represents the cash flow from debt or equity. Typically, it's the costs used in a financing a business.
In Financial accounting, the purposes of the statement of cash flows are to;
A. Predict the future cash flows of a business.
B. Evaluate management decisions.
C. Determine the ability of a business firm to pay debts and dividends.
Basically, the statement of cash flows provides financial information about an organization's operating profitability and how it use its operating cash flow. Thus, an analysis of the statement of cash flows can provide relevant informations about how financially viable an organization is.
You were asked to read U.S. Statistics in 1912 and in your writing journal, you reflected upon how different your life would be had you lived 100 years ago. The learning objective of this assignment was:__________
Explanation:
Hi, you've asked an incomplete question. However, based on inference, after consult relevant academic material, the learning objective on this particular assignment is stated below;
"To think about things like your education, career goals, romantic relationships, how you get around, and your physical health, write at least one paragraph explaining how such aspects of your life would have changed had you lived in the early 1900s."
At the beginning of the year, Shinedown, Corp., had a long-term debt balance of $46,880. During the year, the company repaid a long-term loan in the amount of $12,805. The company paid $4,890 in interest during the year, and opened a new long-term loan for $11,290. How much is the ending long-term debt account on the company's balance sheet
Answer:
Shinedown, Corp.
The ending long-term debt account on the company's balance sheet is:
= $45,365.
Explanation:
a) Data and Calculations:
Beginning long-term debt balance = $46,880
Repayment of a long-term loan = (12,805)
New long-term loan opened = 11,290
Ending balance of long-term debt = $45,365
Interest payment during the year = $4,890
b) The long-term debt account does not include the interest payment during the year. If any interest is not paid, the amount will be taken as a current liability and not a long-term debt.
Your company has a cost of capital equal to 10%. If the following projects are mutually exclusive, and you only have the information that is provided, which should you accept?
A B C E
Payback (years) 1 5 2 5
IRR 18% 20% 20% 12%
NPV (Millions) $40 $75 $35 $100
a. A
b. B
c. C
d. B and C
e. E
Answer:
The project to accept is:
e. E
Explanation:
a) Data and Calculations:
Cost of capital = 10%
Mutually Exclusive Projects:
A B C E
Payback (years) 1 5 2 5
IRR 18% 20% 20% 12%
NPV (Millions) $40 $75 $35 $100
b) Project E should be preferred over all the other projects. It has the highest net present value (NPV) and its internal rate of return (IRR) is above the company's cost of capital. It surpasses projects A, B, and C in financial performance terms using time-value of money analysis.
A project is expected to generate annual revenues of $132,100, with variable costs of $80,200, and fixed costs of $20,700. The annual depreciation is $4,750 and the tax rate is 35 percent. What is the annual operating cash flow
Answer:
$21,943
Explanation:
Calculation to determine the annual operating cash flow
Using this formula
Operating Cash Flow =(Annual Revenue-Variable costs - Fixed costs)×(1-Tax rate)+( Annual depreciation×Tax rate )
Let plug in the formula
Operating Cash Flow =[ ($132,100 - $80,200 - $20,700) x (1 - 0.35)]+ ($4,750 x 0.35)
Operating Cash Flow =
Operating Cash Flow =($31,200×0.65)+$1,663
Operating Cash Flow =$20,280+$1,663
Operating Cash Flow =$21,943
Therefore the annual operating cash flow is $21,943
The payback method of project analysis: Multiple Choice considers the time value of money. is, generally speaking, the best method of project analysis. may ignore some project cash flows. is biased towards long-term projects over short-term projects.
Answer:
may ignore some project cash flows.
Explanation:
Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows
Payback period = Amount invested / cash flow
for example, if 100,000 is invested in project. the cash flows is 20,000 for the next five years, payback = 100,000 / 20,000 = 5 years
cash flows after year 5 would be ignored
Also, it can be seen that the time value of money is not considered. the cash flows have equal value regardless of when they occur
the best method is the net present value
A farmer needs to borrow $1,000. The local PCA will make a 2-year loan fully amortized at 10% (annual rate) with quarterly payments. A $10 loan fee and stock purchase is required. The borrower stock requirement is the lesser of $1,000 or 2% of loan principal. Assume that sufficient money is borrowed to cover the $1,000, the fee and the stock requirement. Also assume that the stock requirement is returned to borrower when the loan is paid off and the last debt payment can be reduced by the stock amount. How much money needs to be borrowed
Answer:
the amount required to be borrowed is $1,030.60
Explanation:
The computation of the amount required to be borrowed is given below:
= (Sufficient money + loan fee) ÷ (1 - given percentage)
= ($1,000 + $10) ÷(1 - 0.02)
= $1,030.60
Hence, the amount required to be borrowed is $1,030.60
We simply applied the above formula so that the correct value could comes and the same should be relevant
Slavery, as a business practice protected by state laws, provided unfair advantage against those employers not using slaves, and thus the economic incentives supported and sustained slavery within its sealed environment.
A. True
B. False
HRH Collection Agency keeps a collection fee of 25% of any amounts collected. How much did the agency collect on a bad debt if the agency forwarded $2490 to a client?
Answer:
The agency collected $ 622.5.
Explanation:
Since HRH Collection Agency keeps a collection fee of 25% of any amounts collected, to determine how much did the agency collect on a bad debt if the agency forwarded $ 2490 to a client, the following calculation must be performed:
2490 x 0.25 = X
622.5 = X
Therefore, the agency collected $ 622.5.
the baking department started the month with 23,500 units in its beginning work in process inventory. An additional 216,000 units started into production during the month to begin processing. There were 193,900 units in completed and transferred to the next processing department during the month. How many units were in ending work in process inventory at the end of the month
Answer:
45,600 units
Explanation:
Calculation to determine How many units were in ending work in process inventory at the end of the month
Using this formula
Units in ending work in process = Units in beginning work in process + Units started into production – Units transferred to the next department
Let plug in the formula
Units in ending work in process= 23,500 units + 216,000 units – 193,900 units
Units in ending work in process= 45,600 units
Therefore the number of units that were in ending work in process inventory at the end of the month is 45,600 units
Kylie Co. owns 67% of Jayzee Inc. On their 12/31/2017 pre-consolidation trial balances, Kylie reports $739,972 Liabilities and Jayzee reports $1,601,119 Liabilities. Jayzee owes Kylie $207,709 on this date. What amount should be reported for Liabilities in Kylie's consolidated financial statements
Answer:
the amount that should be reported for Liabilities in Kylie's consolidated financial statements is $2,187,382
Explanation:
The computation of the amount that should be reported for Liabilities in Kylie's consolidated financial statements is shown below:
= $793,972 + $1,601,119 - $207,709
= $2,187,382
Hence, the amount that should be reported for Liabilities in Kylie's consolidated financial statements is $2,187,382
The same should be considered
MC Qu. 59 A company's flexible budget for... A company's flexible budget for 16,000 units of production showed sales, $96,000; variable costs, $56,000; and fixed costs, $20,000. The sales expected if the company produces and sells 20,000 units is (Do not round intermediate calculations):
Answer: $120,000
Explanation:
First find the selling price of the units.
= Sales / Number of units produced
= 96,000 / 16,000
= $6 per unit
If 20,000 units are sold, the sales would be:
= Number of units sold * selling price
= 20,000 * 6
= $120,000
If you want to increase your purchasing power by investing in a bond, then: _____________
a. you must purchase that bond at a discount.
b. the nominal rate of return on that bond must be less than the inflation rate.
c. you should purchase a premium bond.
d. the nominal rate of return must equal or exceed the rate of inflation.
e. you must earn a positive real rate of return on that bond.
Answer:
b. the nominal rate of return on that bond must be less than the inflation rate
Wesley lives in a country with little protection under the law for conducting business or bringing his ideas about a revolutionary new car tire to the market with patent production. Because of the economic conditions what will Wesley most likely do
Answer:
B. Find a country where he can develop his tire idea and have it protected under strong patent laws.
Explanation:
Wesley is looking in a country that offers little protection for the business of bringing newer ideas to market. Due to the poor economic conditions of the nation, Wesley should try and look for another country that can support his ideas and provide him protection.What are the purposes of the Democratic leadership style?
Answer:
#It brings peace in the society.
#It increases the growth/development of a society.
#It enables civilians of a society to express themselves.
Answer:
Democratic leadership is a type of leadership in which the Group's members play a more participatory role.
Explanation:
This leadership style allows everyone to participate, discuss ideas, hear their views, and encourage debate. However, the group leader still needs guidance and guidance to achieve the goals and goals.
Members of the Group are encouraged to share opinions and ideas, even if the leader retains the last say in decisions.Group members feel more committed to the process.Creativity is promoted and recompensed.As there is group engagement and discussion, more thoughts and ideas lead to better ideas and solutions, the main benefit of a democratic leadership style.
The participants in a group participate more in and engage in projects that increase their investment in the final results. In essence, they care more and increase productivity.
MC Qu. 47 Chang Industries has... Chang Industries has 2,800 defective units of product that have already cost $14.80 each to produce. A salvage company will purchase the defective units as they are for $5.80 each. Chang's production manager reports that the defects can be corrected for $5.20 per unit, enabling them to be sold at their regular market price of $22.60. The incremental income or loss on reworking the units is:
Answer:
$32,480
Explanation:
Calculation to determine what The incremental income or loss on reworking the units is:
First step is calculate the Net benefit per unit to rework
Incremental revenue from reworking $16.80
($22.60 - $5.80)
Less Incremental cost to rework ($5.20)
Net benefit per unit to rework $11.60
Now let calculate the Incremental income from reworking
Incremental income from reworking= ($11.60 * 2,800 units)
Incremental income from reworking=$32,480
Therefore The incremental income or loss on reworking the units is:$32,480
firm has 2,000,000 shares of common stock outstanding with a market price of $2 per share. It has 2,000 bonds outstanding, each selling for $1,200. The bonds mature in 25 years, have a coupon rate of 10%, and pay coupons annually. The firm's beta is 1.5, the risk-free rate is 5%, and the market risk premium is 7%. The tax rate is 34%. Calculate the WACC.
Answer:
A Firm
The firm's WACC is:
= 12.16%
Explanation:
a) Data and Calculations:
Common Bonds
Stock
Outstanding shares/bonds 2,000,000 2,000
Market price per unit $2 $1,200
Total market value $4,000,000 $2,400,000
Total value of debt and equity = $6,400,000
Weight 62.5% 37.5% ($2,400/$6,400*100)
Cost of bonds (coupon rate) = 10%
Tax rate = 34%
Firm's beta = 1.5
Risk-free rate = 5%
Market risk premium = 7%
After-tax cost of bonds = 6.6% (1 - 0.34) * 10%
Cost of common stock =
Risk Free Rate + Beta x (Market Return - Risk Free Rate)
= 5% + 1.5 x (7%)
= 5% + 10.5%
= 15.5%
WACC = 15.5% * 62.5% + 6.6% * 37.5%
= 0.096875 + 0.02475
= 0.1216
= 12.16%
Required information
[The following information applies to the questions displayed below.]
Hudson Co. reports the contribution margin income statement for 2019.
HUDSON CO.
Contribution Margin Income Statement
For Year Ended December 31, 2019
Sales (9,600 units at $225 each) $ 2,160,000
Variable costs (9,600 units at $180 each) 1,728,000
Contribution margin 432,000
Fixed costs 324,000
Pretax income $ 108,000
1. Assume Hudson Co. has a target pretax income of $162,000 for 2020. What amount of sales in dollars) is needed to produce this target income?
2. If Hudson achieves its target pretax income for 2020, what is its margin of safety (in percent)? (Round your answer to 1 decimal place.)
1. Amount of sales
2. Margin of safety
1. Compute Hudson Co.'s contribution margin per unit.
2. Compute Hudson Co.'s contribution margin ratio.
3. Compute Hudson Co.'s break-even point in units.
4. Compute Hudson Co.'s break-even point in sales dollars. per unit
1. Contribution margin
2. Contribution margin ratio
3. Break-even point
4. Break-even sales dollars units
The marketing manager believes that increasing advertising costs by $81,000 in 2020 will increase the company's sales volume to 11,000 units. Prepare a forecasted contribution margin income statement for 2020 assuming the company incurs the additional advertising costs. HUDSON CO. Forecasted Contribution Margin Income Statement For Year Ended December 31, 2020 Sales Variable costs Contribution margin Fixed costs Income (pretaxy Loss Should the company incur the additional advertising costs?
Answer:
Hudson Co.
1. Amount of sales dollars
= $2,430,000
2. Margin of safety (in percent)
= 33%
3-1) Contribution margin per unit = $45
2) Contribution margin ratio = 20%
3) Break-even point in units = 7,200 units
4) Break-even point in sales dollars = $1,620,000 $255
Explanation:
a) Data and Calculations:
HUDSON CO.
Contribution Margin Income Statement
For Year Ended December 31, 2019
Sales (9,600 units at $225 each) $ 2,160,000
Variable costs (9,600 units at $180 each) 1,728,000
Contribution margin 432,000
Fixed costs 324,000
Pretax income $ 108,000
Contribution margin per unit = $45 ($432,000/9,600)
Contribution margin ratio = 20% ($45/$225 * 100)
Break-even point in units = 7,200 ($324,000/$45)
Break-even point in sales dollars = $1,620,000 ($324,000/0.20) $255
1. With target pretax income of $162,000:
Amount of sales dollars = (Fixed cost + Target profit)/Contribution margin ratio
= $2,430,000 ($324,000 + $162,000)/0.20
2. Margin of safety (in percent)
1. Amount of sales = $2,430,000
2. Margin of safety = $810,000 ($2,430,000 - $1,620,000)
Margin of safety in percentage = 33% ($810,000/$2,430,000 * 100)
