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The Wildhorse Company sells sports decals that can be personalized with a player’s name, a team name, and a jersey number for $7.00 each. Wildhorse buys the decals from a supplier for $2.60 each and spends an additional $0.70 in variable operating costs per decal. The results of last month’s operations are as follows:
| Sales revenue | $14,000 | |
| Cost of goods sold | 5,200 | |
| Gross profit | 8,800 | |
| Operating expenses | 3,100 | |
| Operating income | $5,700 |
1. Calculate contribution margin per unit. (Round answer to 2 decimal places, e.g. 0.38.)
2. What is Wildhorse’s monthly breakeven point in units? In dollars? (Use your answer of breakeven units to calculate the breakeven point in dollars. Round Breakeven units and point in dollar to 0 decimal places, e.g. 25,000.)
3. What is Wildhorse’s margin of safety? (Round answers to 0 decimal places, e.g. 25,000.)
Expert Answer
| 1 | ||||
| Sales revenue | 7 | |||
| Less: Variable costs | ||||
| Cost of goods sold | 2.6 | |||
| Operating expenses | 0.7 | |||
| Contribution margin per unit | 3.7 | |||
| 2 | ||||
| Break even point in units = Fixed costs/ Unit contribution margin = 1700/3.7= | 459 | |||
| Break even point in sales = 459*7= | 3213 | |||
| 3 | ||||
| margin of safety = Actual sales-Break even sales = 14000-3213= | ||||
