(LO 3, 4, 5) Zion Seating Co., a manufacturer of chairs, had the following data for 2020:

Question

Sales	2,400 units
Sales price	$40 per unit
Variable costs	$15 per unit
Fixed costs	$19,500

Instructions
a. What is the contribution margin ratio?
b. What is the break-even point in dollars?
c. What is the margin of safety in dollars and the margin of safety ratio?
d. If the company wishes to increase its total dollar contribution margin by 40% in 2021, by how much will it need to increase its sales if all other factors remain constant?

(CGA adapted)

Determine contribution margin ratio, break-even point in dollars, and margin of safety.

Accepted Answer

a. Contribution margin ratio = Unit contribution margin ÷ Unit selling price
($40 − $15) ÷ $40 = 62.5%

b. Break-even in dollars: $19,500 ÷ 62.5% = $31,200

c. Margin of safety in dollars = (2,400 × $40) − $31,200 = $64,800
Margin of safety ratio = $64,800 ÷ (2,400 × $40) = 67.5%

d. Current contribution margin is $40 − $15 = $25
Total contribution margin is $25 × 2,400 = $60,000
40% increase in contribution margin is $60,000 × 40% = $24,000
Total increase in sales required is $24,000 ÷ 62.5% = $38,400

Question 5.PE.2: (LO 3, 4, 5) Zion Seating Co., a manufacturer of chairs, had...

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