Question

Dupli-Pro Copy Shop provides photocopying service. Next year, Dupli-Pro estimates it will copy 2,830,000 pages at a price of $0.08 each in the coming year. Product costs include:

Direct materials $0.015
Direct labor $0.004
Variable overhead $0.001
Total fixed overhead $80,000

Required:
a. Calculate the break-even point in units.
b. Calculate the break-even point in sales revenue.
c. Calculate the margin of safety in units for the coming year.
d. Calculate the margin of safety in sales revenue for the coming year.
e. What if the total selling and administrative expenses are reduced to $38,800?

Answer 1

Missing Word '"There is no variable selling expense; fixed selling and administrative expenses total $46,000."

Selling price per unit = 0.08

Variable cost per unit = 0.015 + 0.004 + 0.001 = 0.02

Fixed costs = 80,000 + 46,000 = 126,000

Contribution margin per unit = Selling price per unit - Variable cost per unit = 0.08 - 0.02 = 0.06

Contribution margin ratio = Contribution margin per unit / Selling price per unit = 0.06 / 0.08 = 0.75

a. Break-even point in units = Fixed costs / Contribution margin per unit = 126,000 / 0.06 = 2,100,000

b. Break even point in sales revenue = Fixed costs / Contribution margin ratio = 126,000 / 0.75 = 168,000

c. Margin of safety in units = Planned sales in units - Break even sales in units = 2,830,000 - 2,100,000 = 730,000

d. Margin of safety in safety in sales revenue = Planned sales - Break even sales = (2,830,000 * 0.08) - 168,000 = 226,400 - 168,000 = 58,400

e. Fixed costs = 80,000 + 38,800 = 118,800

- Break-even point in units = Fixed costs / Contribution margin per unit = 118,800 / 0.06 = 1,980,000

- Break even point in sales revenue = Fixed costs / Contribution margin ratio = 118,800 / 0.75 = 158,400

- Margin of safety in units = Planned sales in units - Break even sales in units = 2,830,000 - 1,980,000 = 850,000

- Margin of safety in safety in sales revenue = Planned sales - Break even sales = (2,830,000 * 0.08) - 158,400 = 226,400 - 158,400 = 68,000