Concept explainers
Concept introduction:
Cost Volume Profit (CVP) Analysis:
The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.
Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula for contribution margin is as follows:
Contribution margin = Sales - Variable cost.
Similarly contribution margin ratio = Contribution/sales
Breakeven Point:
The Breakeven point is the level of sales at which the net profit is nil. It can be explained as a situation where the business is generating a sale that is equal to the expenses incurred and hence no
Margin of Safety:
Margin of safety is sales over and above the breakeven level. Margin of safety can be calculated as dollar amount and in units as follows:
To calculate:
The Margin of Safety and Margin of Safety as % of sales
Want to see the full answer?
Check out a sample textbook solutionChapter 6 Solutions
Loose-leaf For Managerial Accounting
- Margin of safety Jorgensen Company has sales of 380,000,000, and the break-even point in sales dollars is 323,000,000. Determine Jorgensen Companys margin of safety as a percent of current sales.arrow_forwardFire Company is a service firm with current service revenue of $900,000 and a 40% contribution margin. Its fixed costs are $200,000. Ice Company has current sales of $420,000 and a 30% contribution margin. Its fixed costs are $90,000. What is the margin of safety for Fire and Ice? Compare the margin of safety in dollars between the two companies. Which is stronger? Compare the margin of safety in percentage between the two companies. Now which one is stronger? Compute the degree of operating leverage for both companies. Which company will benefit most from a 10% increase in sales? Explain why. Illustrate your findings in an Income Statement that is increased by 10%.arrow_forwarda. If Go-Go Buggies Company, with a break-even point at $6,000,000 of sales, has actual sales of $8,000,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? 1. Margin of Safety (dollars) $ 2. Margin of Safety (percentage) % b. If the margin of safety for Beartooth Company was 15%, fixed costs were $9,180,000, and variable costs were 60% of sales, what was the amount of actual sales (dollars)? (Hint: Determine the break-even in sales dollars first.) Actual sales in dollars $arrow_forward
- Margin of Safety a. If Canace Company, with a break-even point at $631,800 of sales, has actual sales of $780,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? Round the percentage to the nearest whole number. 1. $ 2. % b. If the margin of safety for Canace Company was 30%, fixed costs were $1,593,900, and variable costs were 70% of sales, what was the amount of actual sales (dollars)? (Hint: Determine the break-even in sales dollars first.)$arrow_forwardBellevue Corporation sells a product for $310 per unit. The product's current sales are 14,200 units and its break-even sales are 10,224 units. The margin of safety as a percentage of sales is closest to:arrow_forwardCalculate the break-even sales when a business has sales of $824,000 and a margin of safety of 21%. a. $584,000 b. $650,960 c. $672,100 d. $710,000arrow_forward
- 2 coronado industries had actual sales of $800,000 when break-even sales were 680,000. what is the margin of safety ratioarrow_forwardMargin of safety a. If Kirwan Company, with a break-even point at $435,200 of sales, has actual sales of $640,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales?1. fill in the blank 1 of 2$2. fill in the blank 2 of 2% b. If the margin of safety for Kirwan Company was 25%, fixed costs were $1,203,750, and variable costs were 75% of sales, what was the amount of actual sales (dollars)? (Hint: Determine the break-even in sales dollars first.)fill in the blank 1 of 1$arrow_forwardMargin of Safety a. If Canace Company, with a break-even point at $223,200 of sales, has actual sales of $360,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? Round the percentage to the nearest whole number. 1. $fill in the blank 1 2. fill in the blank 2% b. If the margin of safety for Canace Company was 20%, fixed costs were $1,044,800, and variable costs were 80% of sales, what was the amount of actual sales (dollars)?(Hint: Determine the break-even in sales dollars first.)$fill in the blank 3arrow_forward
- Margin of Safety The Whitehead Company has sales of $900,000, and the break-even point in sales dollars is $585,000. Determine the Whitehead company's margin of safety as a percent of current sales.fill in the blank 1 %arrow_forwardMargin of Safety a. If Canace Company, with a break-even point at $262,700 of sales, has actual sales of $370,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? Round the percentage to the nearest whole number. 1. $. fill in the blank 1 2. %. fill in the blank 2 b. If the margin of safety for Canace Company was 40%, fixed costs were $1,624,800, and variable costs were 60% of sales, what was the amount of actual sales (dollars)? (Hint: Determine the break-even in sales dollars first.)3.$. fill in the blank 3arrow_forwardSherpa Manufacturing has the following income statement for 6,000 units:Sales $600,000Variable costs 360,000Contribution margin 240,000Fixed costs 80,000Net income $160,000 Using the information above: a. At what sales volume (in sales dollars) does Sherpa break even?b. At what sales volume (in units) does Sherpa break even?c. Given the income statement above, compute the margin of safety.d. What level of sales volume must be attained to reach net income of $200,000?e. What level of sales volume must be attained to reach net income of $180,000, assuming Sherpa had to pay income taxes at a rate of 40%?You may attach your workbook(s) to this answer and/or use the textbox belowarrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning