Question 19.IP.1: Wyatt Inc. expects to maintain the same inventories at the e...

1.   a.   Contribution Margin Ratio = \frac{Sales  –  Variable  Costs}{Sales}

Contribution Margin Ratio = \frac{(60,000  units  ×  \$20)  –  (60,000  units  ×  \$14)}{(60,000  units  ×  \$20)} 

Contribution Margin Ratio = \frac{\$1,200,000  –  \$840,000}{ \$1,200,000} = \frac{\$360,000}{ \$1,200,000}

Contribution Margin Ratio = 30%

     b.  Unit Contribution Margin = Unit Selling Price – Unit Variable Costs

Unit Contribution Margin = $20 – $14 = $6

2.  Break-Even Sales (units) = \frac{Fixed  Costs}{Unit  Contribution  Margin}

      Break-Even Sales (units) = \frac{\$ 288,000}{\$6} = 48,000 units 

5. Margin of safety:

Expected sales (60,000 units × $20)          $1,200,000

Break-even point (48,000 units × $20)          960,000

Margin of safety                                               \underline{\underline{\$ \ 240,000}}

or

Margin of Safety (units) = \frac{ Margin  of  Safety  (dollars)}{ Unit  Selling  Price}

or

12,000 units ($240,000/$20)

or

Margin of Safety = \frac{ Sales  –  Sales  at  Break-Even  Point}{Sales}

Margin of Safety = \frac{\$ 240,000}{\$ 1,200,000} = 20%