Question

andy Bank, Inc., makes one model of wooden canoe. and, the information for it follows: Number of canoes produced and sold 450 650 800 Total costs Variable costs $ 63,000 $ 91,000 $ 112,000 Fixed costs $ 187,200 $ 187,200 $ 187,200 Total costs $ 250,200 $ 278,200 $ 299,200 Cost per unit Variable cost per unit $ 140.00 $ 140.00 $ 140.00 Fixed cost per unit 416.00 288.00 234.00 Total cost per unit $ 556.00 $ 428.00 $ 374.00 Sandy Bank sells its canoes for $375 each. Required: 1. Suppose that Sandy Bank raises its selling price to $500 per canoe. Calculate its new break-even point in units and in sales dollars. 2. If Sandy Bank sells 700 canoes, compute its margin of safety in dollars and as a percentage of sales. (Use the new sales price of $500.) 3. Calculate the number of canoes that Sandy Bank must sell at $500 each to generate $110,000 profit.

Answer 1

Answer:

Results are below.

Explanation:

To calculate the break-even point in units and dollars, we need to use the following formulas:

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units= 187,200 / (500 - 140)

Break-even point in units= 520

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 187,200 / (360 / 500)

Break-even point (dollars)= 187,200 / 0.72

Break-even point (dollars)= $260,000

Now, to calculate the margin of safety for 700 units, we need to use the following formulas:

Margin of safety= (current sales level - break-even point)

Margin of safety= (700*500) - 260,000

Margin of safety= $90,000

Margin of safety ratio= (current sales level - break-even point)/current sales level

Margin of safety ratio= 90,000 / 350,000

Margin of safety ratio= 0.2571

Finally, the desired profit is $110,000:

Break-even point in units= (fixed costs + desired profit) / contribution margin per unit

Break-even point in units= (187,200 + 110,000) / 360

Break-even point in units= 826