Question

Coors company expects sales of 456,000 (4,800 units at 95 per unit). The company's total fixed costs are 114,000 and its variable costs are 65 per unit. Compute (a) break-even in units and (b) the margin of safety in dollars.

Answer 1

The break-even point for Coors company is 3,800 units, and the margin of safety in dollars is $95,000.

Step-by-step explanation:

The subject of the question is determining the break-even point in units and calculating the margin of safety in dollars for Coors company. To calculate the break-even point in units, we need to divide the total fixed costs by the contribution margin per unit, which is the selling price per unit minus the variable cost per unit. Using the given figures:

• Total Fixed Costs = $114,000
• Selling Price per Unit = $95
• Variable Cost per Unit = $65

We calculate the contribution margin per unit as ($95 - $65) = $30. The break-even point in units is then $114,000 / $30 = 3,800 units.

To calculate the margin of safety in dollars, we subtract the break-even sales in dollars from the actual or projected sales. The break-even sales in dollars is the break-even point in units multiplied by the selling price per unit. Thus, break-even sales = 3,800 units * $95 = $361,000. The expected sales are 4,800 units * $95 = $456,000, so the margin of safety in dollars is $456,000 - $361,000 = $95,000.