Lecture 5 Managerial Accounting ❺CVP (Decision Making)

❸ Breakeven (BE)

BE is the point at which total cost and total revenue are equal (no profit or loss).
It is important for the management accountant to know the volume (in units) and value (in dollars) of sales at
which break-even is achieved to speed up his thinking and analysis of all the company’s activities.
This analysis depends on 13 rules in 4 categories, we can introduce them through Mostafa restaurant case as follows:
Example (1): Refer to the original data in Mostafa restaurant which has the following income statement:
Total Per Unit Ratio

Sales (150 x 40) 6,000 40 100%

(-) TVC (150 x 30) (4,500) (30) (75%)
TCM (150 x 10) 1,500 10 25%
(-) TFC (1,000)
NOI 500
Required:
1- Breakeven sales in units (#) & dollars ($).
2- Sales needed (in # & $) to achieve target profit $1,000.
3- Margin of Safety in #, $, & %. Explain the meaning of each one.
4- NOI when the expected sales are 150 units or $6,000.

1- Break-Even point (BE) 2- Target Profit (TP)

CM = $10 per unit, how many units should we sell to cover TFC? CM = $10 per unit, how many units should we sell to cover TFC & 1,000 NOI?

TFC 1,000 TFC + TP 1,000 + 1,000

#BE = = 100 U # TP = = 200 U
In units
CM 10 In units
CM 10
BE TFC 1,000 $
TP TFC + TP 1,000 + 1,000 $
%
= = 4,000 = = 8,000
$
BE CM 25 %
$
TP CM %
25%
In dollars
#BE x SP = 100 units x 40 = $4,000 In dollars
#TP x SP = 200 units x 40 = $
8,000

3- Margin of Safety 4- NOI using BE

It is the possible decrease in sales before suffering loss.
Margin × Margin
So, it is the excess of sales over the break-even point of sales.
Note that: budgeted sales in Mostafa = 150 units or $6,000 (MS × CM)

# MS budgeted #Sales - #BE = 150 – 100 = 50 U

In units
MS $
budgeted Sales - $BE = 6,000 – 4,000 = $2,000
$
MS
In dollars $
#MS x SP = 50 units x 40 = 2,000
By units (#Sales - #BE) x CM
#MS 100 = (150 – 100) x 10 = 500
By units = = 33% NOI
#Sales 150
MS% By dollars ($Sales - $BE) x CM%
$
MS 2,000 = (6,000 – 4,000) x 25% = 500
By dollars $
= = 33%
Sales 6,000
Also we can prove BE graphically & mathematically as follows:
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

Graphically BE
Revenue line above cost line
1) Total revenue = 40 X (X is number of units sold)
Total Revenue > Total cost
X Sales $ Total Revenue
$6,000 TCM > TFC
0 0 $
5,000
$4,000 Profit area
50 2,000
$3,000
if we
$
100 4,000
$2,000 aggregate two $6,000

$1,000 lines in the $5,000

BE point
150 6,000 Units same graph, $
BE $4,000
125
25

100

150
50
75

they will $3,000

2) Total cost = 1,000 + 30 X (X is number of units sold) intercept in $2,000

X TC $ Total cost one point $1,000

$6,000
which is Units
0 1,000

125
25

100

150
$5,000
Break-Even

50
75
$4,000
point. #BE
50 2,500 $3,000 Loss area
$
2,000
100 4,000 $1,000 Revenue line under cost line
Units Total Revenue < Total cost
150 5,500
125
25

100

150
50
75

TCM < TFC

Mathematically BE
@ BE (X = #BE):
Total Revenue = Total cost
SP x #BE = TFC + VC x #BE
SP x #BE - VC x #BE = TFC
#BE (SP – VC) = TFC
TFC
#BE =
SP - VC
TFC
#BE =
CM

BE as a method of evaluating alternatives

If you are assessing several alternatives on the basis of a break-even, then of course the best alternative is the
one that achieves BE quickly, which has the lowest BE.

Referring to example No. 11 page 41 (last lecture) we had 2 options with same Δ NOI, now we can calculate
BE for each option as follows:
option (1) option (2)
TFC 170,000 TFC 140,000
#BE = = = 8,500 units # BE = = = 6,087 units
CM 20 CM 23

According to BE we advise management to choose option 2.

 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

Example (2): Alex Company produces & sells a single product with the following income statement for
2020:
÷
20,000 U
Sales (20,000 units) 2,400,000 120 100%
(-) TVC (1,800,000) (90) (75%)
TCM 600,000 30 25%
(-) TFC (400,000)
NOI 200,000
Required:
1. What are the contribution margin ratio and the break-even sales dollars?
2. What is the degree of operating leverage at the current level of sales?
3. If management expects sales of 2021 to increase by 5% from the current level what will be the % of increase in
net income? Do Not Prepare Income Statement.
4. Refer to the original data. If expected sales in 2021 amount $3,000,000 what will be operating income at this
level of expected sales? Do Not Prepare Income Statement.
5. Refer to the original data. In order to increase sales, management is studying a proposal to use higher quality
materials which will increase the unit variable cost by $6 and decrease fixed cost by $100,000. The marketing
manager expects the sales to increase by 20% from its current level. Would you agree or disagree with the proposal? Why?

Required 1: $BE = TFC / CM% = 400,000 / 25% = 1,600,000

Required 2: DOL = TCM / NOI = 600,000 / 200,000 = 3 times
Required 3: Δ% NOI = Δ% sales × DOL = 5% × 3 times = 15%
Required 4: NOI = (sales - $BE) × CM% = (3,000,000 – 1,600,000) × 25% = 350,000
Required 5: Increase in # sold = 20,000 × 20% = 4,000
SP - VC = CM x Sales# = TCM - TFC = NOI
Now 120 - 90 = 30 x 20,000 = 600,000 - 400,000 = 200,000
Δ +6 + 4,000 (100,000)
New 120 - 96 = 24 x 24,000 = 576,000 - 300,000 = 276,000
Δ NOI = New – Now = 276,000 – 200,000 = + 76,000 accept
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

Example (3): The following is Mostafa Corporation's contribution format income statement:
Sales 1,200,000 60 100%
(-) TVC (800,000) (40) (66.7%)
TCM 400,000 20 33.3%
(-) TFC (300,000) ÷
20,000 U
NOI 100,000
The company has no beginning or ending inventories and produced and sold 20,000 units during the month.
Required:
1. What is the company's contribution margin ratio?
2. What is the company's break-even in units?
3. If sales increase by 100 units, by how much should net operating income increase?
4. How many units would the company have to sell to attain target profits of $125,000?
5. What is the company's margin of safety in dollars?
6. If sales next year is expected to be $1,500,000. How much will be net income?
7. What is the company's degree of operating leverage?

Required 1: Calculated in I/S above = 33.3%

Required 2: #BE = TFC / CM = 300,000 / 20 = 15,000 units
Required 3: Δ NOI = Δ Sales# × CM = 100 × 20 = 2,000
Required 4: #TP = (TFC + TP) / CM = (300,000 + 125,000)/20 = 21,250 units
Required 5: $BE = TFC / CM% = 300,000 / 33.3% = $900,000 ⸫ $MS = Sales - $BE = 1,200,000 – 900,000 = $300,000
Required 6: NOI = (Sales - $BE) × CM% = (1,500,000 – 900,000) × 33.3% = 200,000
Required 7: DOL = TCM / NOI = 400,000 / 100,000 = 4 times

Example (4): Mostafa Company’s income statement for last quarter is as follows:
Total Per unit Ratio
Sales 450,000 30 100%
(-) TVC (180,000) (12) (40%)
TCM 270,000 18 60%
(-) TFC (216,000)
NOI 54,000
Required:
1. What is the quarterly break-even point in units sold and in sales dollars?
2. Without resorting to computations, what is the total contribution margin at the break-even point?
3. How many units would have to be sold each quarter to earn a target profit of $90,000?
4. Compute the company's margin of safety in both dollar and percentage.
5. What is the company's CM ratio? If sales increase by $22,500 per quarter and there is no change in fixed cost,
by how much would you expect quarterly net operating income to increase?
6. If sales next year is expected to be 20,000 units. How much net income will be?
7. What is the company degree of operating leverage?
8. If sales next year is expected to decrease by 15%. What is the percentage of change in net income?

Required 1: = TFC / CM = 216,000 / 18 = 12,000 units

#BE & $
BE = TFC / CM% = 216,000 / 60% = 360,000
Required 2: @ BE: TCM = TFC = 216,000
Required 3 #TP = (TFC + TP) / CM = (216,000 + 90,000)/18 = 17,000 units
Required 4: $MS = Sales - $BE = 450,000 – 360,000 = $90,000 & MS% = $MS / Sales = 90,000 / 450,000 = 20%
Required 5: CM = 60 (calculated above) ⸫ Δ NOI = increasing in sales x CM% = 22,500 x 60% = 13,500
% %

Required 6: NOI = (#sales - #BE) × CM = (20,000 – 12,000) × 18 = 144,000

Required 7: DOL = TCM / NOI = 270,000 / 54,000 = 5 times
Required 8: Δ% NOI = Δ% sales × DOL = (-) 15% × 5 = (-) 75%
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

Example (5): Mostafa company produces a single product & sells it for $60. The following is information
about unit cost:
Direct materials $
20 Variable selling $
3
Direct labor $
10 Fixed manufacturing cost per month $
10,000
Variable overhead $
7 Fixed selling cost per year $
80,000
Required:
1. Prepare a contribution format income statement for 2020 if budgeted sales are 25,000 units.
2. What is the BE in units & dollars?
3. What is the monthly BE dollars?
4. What is margin of safety ratio?
5. What is the degree of operating leverage?
6. What is the % change in net income; if sales decrease by 30%?
7. What is operating income if sales are 8,000 units? Do not prepare income statement?

Required 1: VC = 20 + 10 + 7 + 3 = 40 TFC = (10,000 × 12) + 80,000 = 200,000

total Per unit Ratio
Sales (25,000 × 60) 1,500,000 60 100%
(-) TVC (25,000 × 40) (1,000,000) (40) (67%)
TCM 500,000 20 33%
(-) TFC (200,000)
NOI 300,000
Required 2: #BE TFC
= / CM = 200,000 / 20 = 10,000 units & $BE = BE × SP = 10,000 × 60 = 600,000
#
$
Required 3: monthly BE = annually $BE / 12 = 600,000 / 12 = 50,000
Required 4: MS% = (#sales - #BE) / #sales = (25,000 – 10,000) / 25,000 = 60%
Required 5: DOL = TCM / NOI = 500,000 / 300,000 = 1.7 times
Required 6: Δ% NOI = Δ% sales × DOL = 30% × 1.7 = 51%
Required 7: NOI = (#sales - #BE) × CM = (8,000 – 10,000) × 20 = (-) 40,000

Example (6): Mostafa Corporation has decided to introduce a new product. The product can be
manufactured using either a capital-intensive or labor-intensive method. The manufacturing method will not affect
the quality or sales of the product. The estimated manufacturing costs of the two methods are as follows:
Capital Intensive Labor Intensive
Variable manufacturing cost per unit $
14 $
17.6
Fixed manufacturing cost per year $
2,440,000 $
1,320,000
The company's market research department has recommended an introductory selling price of $30 per unit for the
new product. The annual fixed selling and administrative cost of the new product are $500,000. The variable selling
and administrative cost are $2 per unit regardless of how the new product is manufactured.
Required:
1. Calculate the #BE if Mostafa corporation uses the capital-intensive manufacturing method.
2. Calculate the #BE if Mostafa Corporation uses the labor-intensive manufacturing method.
3. Determine the unit sales volume at which the net income is the same for the two manufacturing methods.

Required 1 Required 2
In capital-intensive manufacturing method In labor-intensive manufacturing method
SP = 30 SP = 30
VC = 14 + 2 = 16 VC = 17.6 + 2 = 19.6
CM = SP – VC = 30 – 16 = 14 CM = SP – VC = 30 – 19.6 = 10.4
TFC = 2,440,000 + 500,000 = 2,940,000 TFC = 1,320,000 + 500,000 = 1,820,000
TFC / 2,940,000 / TFC / 1,820,000 /
#BE = CM = 14 = 210,000 units #BE = CM = 10.4 = 175,000 units
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

Required 3
Suppose that the unit sales volume at which the net income is the same for the two manufacturing methods = X
While: NOI = TCM – TFC

Profit for capital-intensive Profit for labor-intensive

= 14 X – 2,940,000 = 10.4 X – 1,820,000
The profits are equal when:
=

14 X – 2,940,000 = 10.4 X – 1,820,000

14 X – 10.4 X = 2,940,000 – 1,820,000
3.6 X = 1,120,000
⸫X= 1,120,000
/ 3.6 = 311,111 units
Example (7): ABC stores sells shirts. To encourage sales personal in their sales efforts the company
pays a substantial sales commission on each shirt sold in addition to a small basic salary. The following data are
typical of the company's many stores.
Selling price per unit $40
Purchasing price per unit $18
Sales Commission per unit $7
Fixed costs: rent $80,000 advertising $150,000 salaries $70,000.
The company has asked you, as a member of its planning group to assist in some basic analysis of its stores and
company policies.
Required:
1- Calculate the annual break-even point in units.
2- If 25,000 shirts are sold in a year what would be the store net operating income?
3- Refer to the original data. The company is considering paying the store manager a $3 commission on each shirt
sold in excess of the break-even point. If this change is made, what will be the store’s net operating income or
loss if 24,000 shirts are sold in a year.
4- Refer to the original data. The company is considering eliminating sales commission entirely in its stores and
increasing fixed salaries by $107,000 annually. If this change is made:
a- What will be the new break-even point in units.
b- Would you recommend that the change be made?

Required 1:
VC = 18 + 7 = 25 TFC = 80,000 + 150,000 + 70,000 = 300,000
CM = SP – VC = 40 – 25 = 15
TFC / 300,000 /
#BE = CM = 15 = 20,000 units
Required 2: NOI = (#sales - #BE) × CM = (25,000 – 20,000) × 15 = 75,000
Required 3:
VC after BE = 25 + 3 = 28
⸫ CM after BE = 40 – 28 = 12
NOI = (#sales - #BE) × CM = (24,000 – 20,000) × 12 = 48,000

Required 4-a:
SP - VC = CM x Sales# = TCM - TFC = NOI
Now 40 - 25 = 15 x 25,000 = 375,000 - 300,000 = 75,000
Δ (7) + 107,000
New 40 - 18 = 22 x 25,000 = 576,000 - 407,000 = 143,000
Δ NOI = 143,000 – 75,000 = + 68,000
#BE = TFC / CM = 407,000 / 22 = 18,500 units
Required 4-b: Yes, I recommend it, because #BE decrease & NOI will increase by $68,000.
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

Example (8): Due to Erratic sales of its sole product, Inc., has been experiencing difficulty for some
time. The company's contribution format income statement for the most recent month is given below:
Sales (19,500 u × 30) 585,000 30 100%
(-) TVC (409,500) (21) (70%)
TCM 175,500 9 30%
(-) TFC (180,000)
NOI (4,500)
Required: 1. Compute the company's CM ratio and its break-even point in both units and dollars.
2. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $60,000
in the monthly advertising budget, will cause unit sales to double. Do you accept this proposal?
3. Refer to the original data. The Marketing Department thinks that a fancy new package for the product would
help sales. The new package would increase packaging costs by 75 cents per unit. Assuming no other changes,
how many units would have to be sold each month to earn a profit of $9,750?
4. Refer to the original data. By automating certain operations, the company could reduce variable costs by $3 per
unit. However, fixed costs would increase by $72,000 each month.
a. Compute the new CM ratio and the new break-even point in both units and dollars.
b. Assume that the company expects to sell 26,000 units next month. Prepare two contribution format income
statements, one assuming that operations are not automated and one assuming that they are. Would you
recommend that the company automate its operations?

Required 1: #BE = TFC / CM = 180,000 / 9 = 20,000 units & $BE = TFC /

CM% =
180,000 /
30% = 600,000
Required 2: Decreasing in SP = 30 × 10 = 3 %

SP - VC = CM x Sales# = TCM - TFC = NOI

Now 30 - 21 = 9 x 19,500 = 175,500 - 180,000 = (4,500)
Δ (3) + 19,500 + 60,000
New 27 - 21 = 6 x 39,000 = 234,000 - 240,000 = (6,000)
Δ NOI = New – Now = (-) 6,000 – (-) 4,500 = (-) 1,500 Reject

Required 3: New VC = 21 + 0.75 = 21.75 ⸫ New CM = 30 – 21.75 = 8.25

#TP = (TFC + TP) / CM = (180,000 + 9,750)/
8.25 = 23,000 units
Required 4-a: New VC = 21 – 3 = 18 New TFC = 180,000 + 72,000 = 252,000
New CM = 30 – 18 = 12 New CM% = 12 / 30 = 40%
TFC
#BE = / CM = 252,000 / 12 = 21,000 units & $BE = TFC / 252,000 /
CM% = 40% = 630,000
Required 4-b:
Manual Automating
Sales (26,000 × 30) 780,000 780,000
(-) TVC (26,000 × 21) (26,000 × 18) (546,000) (468,000)
TCM 234,000 312,000
(-) TFC (180,000) (252,000)
NOI 54,000 60,000
Yes, I would recommend the company to automate its processes.
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

Example (9): The following is the budgeted income statement for Alex Company that sells a single
÷
product: 10,000 U
Sales (10,000 units) 1,200,000 120 100%
(-) TVC (720,000) (72) (60%)
TCM 480,000 48 40%
(-) TFC (400,000)
NOI 80,000
Required:
1. By how much net operating income increases if one more additional unit is sold?
2. What is the BE point in sales dollars? What is the margin of safety at this level of expected sales?
3. Refer to the original data. If management desires to achieve operating income of $120,000 for next year, what
should be sales dollars to achieve the targeted operating income?
4. Refer to the original data. If expected sales increase by 5% what will be the % of increase in net operating
income? Do not prepare income statement. Use the degree of operating leverage.
5. Refer to the original data. If actual sales amounted $2,000,000; what is the operating income at this level of
sales? Do not prepare income statement.
6. Refer to the original data. In order to increase sales, management is studying a proposal to use higher quality
materials which will increase the unit variable cost by $6 and decrease fixed costs by $120,000. The marketing
manager expects the sales units to increase by 30% from its current level: Do you agree on the proposal? Use the
incremental approach.

Required 1: CM = 120 – 72 = 48
Required 2: $BE = TFC / CM% = 400,000 / 40% = 1,000,000 ⸫ $MS = Sales - $BE = 1,200,000 – 1,000,000 = 200,000
Required 3: $TP = (TFC + TP) / CM% = (400,000 + 120,000) / 40% = 1,300,000
Required 4: DOL = TCM / NOI = 480,000 / 80,000 = 6 times ⸫ Δ% NOI = Δ% sales × DOL = 5% × 6 times = 30%
Required 5: NOI = (Sales - $BE) x CM% = (2,000,000 – 1,000,000) × 40% = 400,000
Required 6: Increasing in # sold = 10,000 x 30% = 3,000
SP - VC = CM x Sales# = TCM - TFC = NOI
Now 120 - 72 = 48 x 10,000 = 480,000 - 400,000 = 80,000
Δ +6 + 3,000 (120,000)
New 120 - 78 = 42 x 13,000 = 546,000 - 280,000 = 266,000
Δ NOI = New – Now = 266,000 – 80,000 = + 186,000 accept
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

Example (10): The budget contribution margin income statement for Al-Ahly corporation for next year
÷
is given below: 50,000 U
Sales (50,000 units) 5,000,000 100 100%
(-) TVC (3,000,000) (60) (60%)
TCM 2,000,000 40 40%
(-) TFC (1,200,000)
NOI 800,000
Required:
1- what is the margin of safety ratio for the budgeted level of sales?
2- Refer to the original data and assume that a management member is suggesting replacing sales commission
which is 10% of selling price and increasing advertising by $400,000. This is expected to increase sales units by
40% from the budgeted sales. Do you agree with this proposal?
3- Refer to the original income statement and assume that another management member proposes that if the
company reduces its sale price by 20% and increase advertising by $100,000 sales revenue would be doubled. What
is the effect of this proposal on the company's net operating income?

Required 1: #BE = TFC / CM = 1,200,000 / 40 = 30,000

MS% = (sales – BE) / sale = (50,000 – 30,000) / 50,000 = 40%
Required 2: Sales commission = 100 x 10% = 10
Increasing in sales = 50,000 x 40% = 20,000
SP - VC = CM x Sales# = TCM - TFC = NOI
Now 100 - 60 = 40 x 50,000 = 2,000,000 - 1,200,000 = 800,000
Δ (10) + 20,000 + 400,000
New 100 - 50 = 50 x 70,000 = 3,500,000 - 1,600,000 = 1,900,000
Δ NOI = New – Now = 1,900,000 – 800,000 = + 1,100,000 accept
Required 3: Decreasing in SP = 100 x 20% = 20 ⸫ New SP = 100 – 20 = 80 ⸫ New VC% = 60/80 = 75%
SP% - VC% = CM% x $Sales = TCM - TFC = NOI
Now 100 - 60% % = 40 % x 5,000,000 = 2,000,000 - 1,200,000 = 800,000
Δ + 5,000,000 + 100,000
New 100 - 75% % = 25 % x 10,000,000 = 2,500,000 - 1,300,000 = 1,200,000
Δ NOI = New – Now = 1,200,000 – 800,000 = + 400,000
Example (11): The margin of safety in Cairo company is $48,000, a company’s sales are $240,000, and
its variable cost are $180,000.
Required: 1- what are the companies fixed costs?
2- if sales increase by $50,000 by how much net operating income will increase?

Required 1: Required 2:
Sales 240,000 100% Δ NOI = increasing in sales x CM%
(-) TVC (180,000) (75%) ⸫ Δ NOI = 50,000 × 25% = 12,500
TCM 60,000 25%
(-) TFC ?
NOI ?
$MS = Sales - $BE, so: 48,000 = 240,000 - $BE
$BE = 240,000 – 48,000 = 192,000
$BE = TFC / TFC /
CM% , so: 192,000 = 25%
⸫ TFC = 192,000 × 25 = 48,000
%
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

Example (12): The following monthly data in contribution margin income statement format are available
for Cairo company:
Total Per unit %
Sales (300 units) 84,000 280 100%
(-) TVC (33,000) (110) (39%)
TCM 51,000 170 61%
(-) TFC (34,000)
NOI 17,000
Required:
1- what is the contribution margin at the break-even point?
2- what is the break-even sales units?
3- if sales increased by 10% from its current level:
a- what will be the amount of increase in net operating income?
b- what will be the percentage of increase in net operating income?
4- management is considering the use plastic gathering rather than metal gathering, this change would reduce
unit variable cost by $18. Since quality of the product will decline, this will result in reducing sales by 250 units.
Should this change be made?
5- in order to increase sales, management is considering cutting the unit sale price by $22 and increasing monthly
advertising by $20,000. management believes that these actions will increase sales units by 50 % from its current
level. should these changes be made?
6- if #sales decrease to be 220 units would you expect DOL to be higher or lower than the one you calculated,
why?

Required 1: @ BE: TCM = TFC = 34,000

Required 2: # BE = TFC / CM = 34,000 / 170 = 200 units
Required 3-a: + in sales = 84,000 x 10% = 8,400 ⸫ + in NOI = Δ sales × CM% = 8,400 x 61% = 5,124
Required 3-b: DOL = TCM / NOI = 51,000 / 17,000 = 3 times ⸫ Δ% NOI = Δ% sales × DOL = - 10% × 3 times = 30%
Required 4: Current # sold = Sales / SP = 84,000 / 280 = 300 units
SP - VC = CM x Sales# = TCM - TFC = NOI
Now 280 - 110 = 170 x 300 = 51,000 - 34,000 = 17,000
Δ (18) (250)
New 280 - 92 = 188 x 50 = 9,400 - 34,000 = (24,600)
Δ NOI = New – Now = (-) 24,600 – 17,000 = (-) 41,600 Reject
Required 5: Increasing in sales = 300 x 50% = 150
SP - VC = CM x Sales# = TCM - TFC = NOI
Now 280 - 110 = 170 x 300 = 51,000 - 34,000 = 17,000
Δ (22) + 150 + 20,000
New 258 - 110 = 148 x 450 = 66,600 - 54,000 = 12,600
Δ NOI = New – Now = 12,600 – 17,000 = (-) 4,400 Reject

Required 6: DOL at 220 units of sales will be higher than 3 because DOL is higher when units of sales are close to units
to BE and it gets lower when units of sales are far away from BE.
Just to confirm this idea I reprepare income statement @ 220 units as follows:
Total Per unit %
Sales (220 units) 61,600 280 100%
(-) TVC (24,200) (110) (39%)
TCM 37,400 170 61%
(-) TFC (34,000)
NOI 3,400
TCM
DOL = / NOI = 37,400 / 3,400 = 11 times
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

Example (13): M, Inc., has developed a new fantasy board game. The company sold 15,000 games last
year at a selling price of $20 per game. Fixed costs associated with the game total $182,000 per year, and variable
costs are $6 per game.
Required:
1- Prepare a contribution format income statement for the game last year & compute the DOL.
2- Management is confident that the company can sell 18,000 games next year (an increase of 3,000 games, or
20%, over last year). Compute:
a. The expected percentage increase in net operating income for next year.
b. The expected total dollar net operating income for next year. (Do not prepare an income statement;
use the degree of operating leverage to compute your answer).

Required 1:
total Per unit Ratio
Sales (15,000 × 20) 300,000 20 100%
(-) TVC (15,000 × 6) (90,000) (6) (30%)
TCM 210,000 14 70%
(-) TFC (182,000)
NOI 28,000
DOL = 210,000 / 28,000 7.5 times
Required 2-a: Δ% NOI = Δ% sales × DOL = 20% × 7.5 = 150%
Required 2-b: New NOI = Old NOI + (Old NOI × Δ% NOI) = 28,000 + (28,000 × 150%) = 70,000

Example (14): Mostafa company contribution ratio is 30% if the degree of operating leverage 5 times at
the $200,000 sales level.
Required:
1- what is the margin of safety in sales dollar?
2- If sales decrease by $50,000 what will be the effect on the break-even dollar of sales?

Required 1: TCM = Sales × CM% = 200,000 × 30% = 60,000

DOL = TCM / NOI 5 = 60,000 / NOI ⸫ NOI = 60,000 / 5 = 12,000
NOI = TCM – TFC 12,000 = 60,000 – TFC TFC = 60,000 – 12,000 = 48,000
$BE = TFC / 48,000
CM% = / 30% = 160,000
$MS = Sales - $BE = 200,000 – 160,000 = $40,000

Required 2: If Sales decrease, there is no effect on the $BE point.

Example (15): The Hartford Symphony Guild is planning its annual dinner-dance. The dinner-dance
committee has assembled the following expected costs for the event:
Dinner (per person) $
18
Favors and program (per person) $
2
VC = 20
Band $
2,800
Rental of ballroom $
900 TFC = 6,000
Professional entertainment during intermission $
1,000
Tickets and advertising $
1,300
The committee members would like to charge 35 per person for the evening's activities.
$

Required:
1- Compute the BE point for the dinner-dance (in terms of the number of persons).
2- Assume that last year only 300 persons attended the dinner-dance. If the same number attends this year,
what price per ticket must be charged in order to break even?

Required 1: #BE = TFC / (SP – VC) = 6,000 / (35 – 20) = 400 persons
Required 2: #BE = TFC / (SP – VC) 300 = 6,000 / (SP – 20) 300 (SP – 20) = 6,000
300 SP – 6,000 = 6,000 300 SP = 6,000 + 6,000 300 SP = 12,000
⸫ SP = 12,000 / 300 = 40 per person
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

Example (16): What is the breakeven point in units, assuming a product's selling price is $100, fixed
costs are $8,000, unit variable costs are $20, and operating income is $32,000?

TFC 8,000
#BE = = = 100 units
CM 100 - 20
Example (17): Mostafa Corporation has provided the following data concerning its only product:
Selling price 130 per unit
$

Current sales 39,400 units

Break-even sales 35,066 units
What is the margin of safety in dollars?

#MS = #Sales - #BE = 39,400 – 35,066 = 4,334 units

$MS = #MS × SP = 4,334 x 130 = 563,420

Example (18): Mostafa Corporation has provided the following data concerning its only product:
Selling price 210 per unit
$

Current sales 27,000 units

Break-even sales 21,870 units
What is the margin of safety as a percentage of sales?

#sales - #BE 27,000 – 21,800 5,130

MS% = = = = 19%
#sales 27,000 27,000
Example (19): Mostafa Company has a margin of safety percentage of 20% based on its actual sales.
The break-even point is $200,000 and the variable cost are 45% of sales. Given this information, the actual profit
is …

Sales - $BE Sales – 200,000

MS% = = = 20%
Sales Sales
Sales – 200,000 = 0.2 Sales
Sales – 0.2 Sales = 200,000
0.8 Sales = 200,000
200,000
Sales = = 250,000
0.8
⸪ VC% = 45% ⸫ CM% = 100% - 45% = 55%
Actual profit (NOI) = (Sales - $BE) x CM% = (250,000 – 200,000) x 55% = 27,500
Example (20): Given the following margin of safety for the current level of sales $200,000, if total fixed
cost $150,000, VC% 60%, what is the current level of sales?

CM% = 100% - VC% = 100% - 60% = 40%

$BE = TFC / CM% = 150,000 / 40% = $375,000
$MS = Sales - $BE

200,000 = sales – 375,000

⸫ sales = 200,000 + 375,000 = 575,000
Example (21): The contribution margin ratio is 25% for Grain Company and the break-even point in sales
is $200,000. To obtain a target net operating income of $60,000, sales would have to be: ……

$BE = TFC / CM% ⸫ 200,000 = TFC / 25% ⸫ TFC = 200,000 × 25% = 50,000
$TP = (TFC + TP) / = (50,000 + 60,000) / 25% = 440,000
CM%
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

Example (22): Given the following: sales $6,000,000, TVC $4,800,000, TFC $720,000. What is the margin
of safety in sales dollars & ratio at this level of sales?

Sales – TVC 6,000,000 – 4,800,000

CM% = = = 20%
Sales 6,000,000
$BE = TFC / 720,000 / $
CM% = 20% = 3,600,000
$MS = Sales - $BE = 6,000,000 – 3,600,000 = 2,400,000

MS% = $MS / sales = 2,400,000 / 6,000,000 = 40%

Example (23): Dorian Company produces and sells a single product. The product sells for $60 per unit
and has a contribution margin ratio of 40%. The company's monthly fixed costs are $28,800. If Dorian Company
desires a monthly net operating income equal to 10% of sales, monthly sales will be?

$TP
TFC + TP
=
CM%
$TP
28,800 + 0.1 $TP
=
0.4
0.4 $TP = 28,800 + 0.1 $TP
0.4 $TP - 0.1 $TP = 28,800
0.3 $TP = 28,800
$TP = 28,800 /
0.3 = 96,000

Example (24): Given the following DOL at current level of sales 5 times, sales $2,000,000, net income
300,000, what is the total fixed cost?
$

DOL = TCM / NOI

5 = TCM / 300,000
TCM = 300,000 × 5 = 1,500,000
NOI = TCM – TFC
300,000 = 1,500,000 – TFC
TFC = 1,500,000 – 300,000 = 1,200,000
Example (25): Given the following income statement:
Sales (30,000 balls) 750,000 25 100%
(-) TVC (450,000) (15) 60%
TCM 300,000 10 40%
(-) TFC (210,000) ÷
NOI 90,000 30,000 U

Required: Due to increase in labor rate the company estimates that variable cost will increase by $3 per ball next
year. If the company wants to maintain the same contribution margin ratio as last year. What selling price per ball
must it charge next year to cover the increased labor costs?

New VC = 15 + 3 = 18
CM% = (SP – VC) / SP ⸫ 40% = (SP – 18) / SP
0.4 SP = SP – 18 ⸫ SP – 0.4 SP = 18 ⸫ 0.6 SP = 18 SP = 18 / 0.6 = 30
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

Example (26): If Mostafa Company’s fixed cost is $140,000, Variable cost per unit is $12, and mixed
cost is 100,000 at 40,000 units of production while is $40,000 at 10,000 units of production. If you know that the
$

selling price is $30 per unit.

Required:
1- What is the break-even point in units sold and in sales dollars?
2- How many units would have to be sold to earn a target profit of $80,000?

Before doing anything, we should analyze the mixed cost into its components:

100,000 - 40,000 60,000 $

Variable cost per unit = = = 2/unit
40,000 - 10,000 30,000
Total fixed cost = 100,000 – (40,000 × 2) = $20,000
⸫ VC = 12 + 2 = 14 & TFC = 140,000 + 20,000 = 160,000
1- #BE = 160,000
/ (30 – 14) = 10,000 units & $BE = 10,000 × 30 = 300,000
2- #TP = (160,000 + 80,000)/ = 15,000 units
16

Example (27): If Mostafa Company’s fixed cost is $60,000, Variable cost per unit is $14, and selling
price is $20 per unit. If you know that salesmen are given a sales commission of 10 % of the selling price on units
sold in excess of the breakeven volume.
Required: How many units would have to be sold to earn a target profit of 50% of fixed cost?

Here we should differentiate between

VC without sales commission VC with sales commission

14 14 +% (20 × 10%) = 16
The target profit that will require the sales commission = 60,000 × 50 = 30,000
60,000 30,000
#TP = +
20 - 14 20 - 16
= 10,000 + 7,500 = 17,500
Example (28): If break-even point in units for Malika company is 30,000 units while its current sales
volume is 40,000 units. As for Mostafa’s company break-even point in units is 25,000 units while its current sales
volume is 50,000 units.
Required:
1- Determine the margin of safety as a percentage of sales for each company.
2- What will be happen for each company if there is a decrease in the overall sales of the market of 30 %.

Malika Mostafa
40,000 – 30,000 10,000 50,000 – 25,000 25,000
= = 25% = = 50%
40,000 40,000 50,000 50,000
Decrease 30% in Market Sales will push Malika company Decrease 30% in Market Sales will decrease Mostafa’s
into the loss area. company profit, but it will remain in profit area.
Example (29): Given the following data for Alex company for the year ended December 31, 2021:
Sales $900,000, net operating income $150,000 & Degree of operating leverage 3 times.
Required:1. what is the company break-even point in dollar sales? 2. what is the margin of safety at this current level of sales?

Required 1: DOL = TCM / NOI 3 = TCM / 150,000 ⸫ TCM = 150,000 × 3 = 450,000

%
CM = TCM / Sales = 450,000 / 900,000 = 50 %

NOI = TCM – TFC 150,000 = 450,000 – TFC TFC = 450,000 – 150,000 = 300,000
$BE = 300,000 /
50% = 600,000
Required 2: $MS = Sales - $BE = 900,000 – 600,000 = 300,000
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

Example (30): Alex Corporation expects the following operating results for next year:
Sales 800,000
$
Contribution margin ratio 75%
Margin of safety 200,000
$
Degree of operating leverage 4
Required:
1. What is the expected total fixed cost for this company?
2. Alex corporation wants to give its sales staff a $75,000 increase in salary but still wants to make the same net
operating income. If it gives this increase, by how much would sales at Alex Corporation have to increase in order
to maintain its current operating income level?

Required 1: $MS = Sales - $BE 200,000 = 800,000 - $BE ⸫$BE = 800,000 – 200,000 = 600,000
$BE = TFC / CM% 600,000 = TFC / 75% ⸫ TFC = 600,000 × 75% = 450,000
Required 2:
Δ NOI = (Δ sales x CM%) – Δ TFC
0 = (0.75 x Δ sales) – 75,000
0.75 Δ sales = 75,000
⸫ Δ sales = 75,000 / 0.75 = 100,000

22. To perform CVP analysis, a company must be able to separate costs into fixed and variable components.
23. On a CVP graph for a profitable company, the total revenue line will be above the total cost line.
24. The variable cost per unit is $12 and the selling price per unit is $40. Then the CM ratio is 70%.
25. The break-even point in units can be obtained by dividing total fixed cost by the contribution margin ratio.
26. Breakeven point is that quantity of output where total revenues equal total costs.
27. The selling price per unit is $30, variable cost per unit $20, and fixed cost per unit is $3. When this company
operates above the breakeven point, the sale of one more unit will increase net income by $7.
28. A company with sales of $100,000, variable costs of $60,000, and fixed costs of $50,000 will reach its breakeven
point if sales are increased by $20,000.

22 23 24 25 26 27 28

24. CM% = (SP – VC) / SP = (40 – 12) / 40 = 70%

27. CM = SP – VC = 30 – 20 = 10
28. CM% = (Sales – TVC)/ Sales = (100,000 – 60,000) / 100,000 = 40% $
BE = TFC / CM% = 50,000 / 40% = 125,000
So: current sales (100,000) should increase by 25,000 to reach to BE point.

111. Mariam Company sells a single product at a selling price of $30 per unit. Variable cost is $12 per unit and
fixed cost are $41,400. Mariam's break-even point is:
a. 1,380 units b. 2,300 units c. 3,450 units d. 6,900 units
112. The following data pertain to last month's operations:
Selling price $
30 per unit
Variable manufacturing cost $
15 per unit
Fixed manufacturing cost $
80,000
Variable S&A cost $
3 per unit
Fixed S&A cost $
40,000
The break-even point in dollars is:
a. $
300,000 b. $
240,000 c. $
200,000 d. $
160,000
113. Sales total $200,000 when variable costs total $150,000 and fixed costs total $30,000. The breakeven point in
sales dollars is:
a. $
200,000 b. $
120,000 c. $
40,000 d. $
30,000
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

114. Mostafa Company's fixed cost total $150,000, its variable cost ratio is 60% and its variable cost is $4.5 per
unit. Based on this information, the break-even point in units is:
a. 50,000 units b. 37,500 units c. 33,333 units d. 100,000 units

111 112 113 114

111.
TFC 41,400
#BE = = = 2,300 units
CM 30 - 12
112.
VC = 15 + 3 = 18 TFC = 80,000 + 40,000 = 120,000
SP – VC 30 - 18 TFC 120,000 $300,000
CM% = = = 40% $BE = %
= =
SP 30 CM 40% (a)
113.
Sales - TVC 200,000 – 150,000
CM% = = = 25%
Sales 200,000
$BE
TFC 30,000
= = = $120,000 (b)
CM% 25%
114.
VC 4.5 4.5
VC% = = = 60% ⸫ SP = = $7.5 per unit
SP SP 60%
TFC 150,000
#BE = = = 50,000 units (a)
CM 7.5 - 4.5
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

ASSIGNEMENT
1 At a break-even point of 400 units sold, variable expenses were $4,000 and fixed expenses were $2,000. What
will the 401st unit sold contribute to profit?
A. $0 B. $5 C. $10 D. $15
2 Scott Company's variable expenses are 72% of sales. The company's break-even point in dollar sales is
$2,450,000. If sales are $60,000 below the break-even point, the company would report a:
A. $43,200 loss B. $60,000 loss
C. $16,800 loss D. cannot be determined from the data given.
3 Mitch Corporation's contribution margin ratio is 14% and its fixed monthly expenses are $87,000. If the
company's sales for a month are $678,000, what is the best estimate of the company's net operating income?
Assume that the fixed monthly expenses do not change.
A. $591,000 B. $496,080 C. $94,920 D. $7,920
4Carver Company produces a product which sells for $30. Variable manufacturing costs are $15 per unit. Fixed
manufacturing costs are $5 per unit based on the current level of activity, and fixed selling and administrative
costs are $4 per unit. A selling commission of 10% of the selling price is paid on each unit sold. The contribution
margin per unit is:
A. $3 B. $15 C. $8 D. $12
5 Last year, Twins Company reported $750,000 in sales (25,000 units) and a net operating income of $25,000. At
the break-even point, the company's total contribution margin equals $500,000. Based on this information, the
company's:
A. contribution margin ratio is 40%. B. break-even point is 24,000 units.
C. variable expense per unit is $9. D. variable expenses are 60% of sales.
6. A company has provided the following data:
Seles 3,000 unit
Selling price $70 per unit
Variable cost $50 per unit
Fixed cost $25,000
If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by 20%, and all
other factors remain the same, net operating income will:
A. increase by $61,000. B. increase by $20,000.
C. increase by $3,500. D. increase by $11,000.
7 Pilkinton Corporation has provided its contribution format income statement for July. The company
produces and sells a single product.
Seles (9.900units) $772,200
Variable expenses 396,000
Contribution margin 376,200
Fixed cost 328,900
Net operating income 47,300
If the company sells 10,300 units, its total contribution margin should be closest to:
A. $49,211 B. $391,400 C. $407,400 D. $376,200
8. Litke Corporation, a company that produces and sells a single product, has provided its contribution
format income statement for February.
Seles (9.900units) $129,600
Variable expenses 59,400
Contribution margin 70,200
Fixed cost 54,600
Net operating income 15,600
If the company sells 5,100 units, its net operating income should be closest to:
A. $15,600 B. $11,700 C. $8,400 D. $14,733
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

9. Riven Corporation has a single product whose selling price is $10. At an expected sales level of
$1,000,000, the company's variable expenses are $600,000 and its fixed expenses are $300,000. The
marketing manager has recommended that the selling price be increased by 20%, with an expected
decrease of only 10% in unit sales. What would be the company's net operating income if the marketing
manager's recommendation is adopted?
A. $132,000 B. $290,000 C. $180,000 D. $240,000
10. Data concerning Damberger Corporation's single product appear below:

Per unit Percent of sales

Selling price $150 100%
Variable expenses 90 60%
Contribution margin $60 40%
The company is currently selling 5,000 units per month. Fixed expenses are $243,000 per month. The
marketing manager believes that an $11,000 increase in the monthly advertising budget would result in a
180 unit increase in monthly sales. What should be the overall effect on the company's monthly net
operating income of this change?
A. increase of $200 B. decrease of $200
C. increase of $10,800 D. decrease of $11,000
11. Data concerning Grodi Corporation's single product appear below:
Per unit Percent of sales
Selling price $150 100%
Variable expenses 60 40%
Contribution margin $90 60%
Fixed expenses are $324,000 per month. The company is currently selling 5,000 units per month.
Management is considering using a new component that would increase the unit variable cost by $9. Since
the new component would increase the features of the company's product, the marketing manager
predicts that monthly sales would increase by 500 units. What should be the overall effect on the
company's monthly net operating income of this change?
A. decrease of $4,500 B. decrease of $40,500
C. increase of $40,500 D. increase of $4,500
12. Data concerning Amburn Corporation's single product appear below:
Per unit Percent of sales
Selling price $120 100%
Variable expenses 48 40%
Contribution margin $72 60%
Fixed expenses are $179,000 per month. The company is currently selling 3,000 units per month. The
marketing manager would like to cut the selling price by $9 and increase the advertising budget by $12,000
per month. The marketing manager predicts that these two changes would increase monthly sales by 500
units. What should be the overall effect on the company's monthly net operating income of this change?
A. decrease of $7,500 B. increase of $19,500
C. decrease of $19,500 D. increase of $43,500
13. Scott Company's variable expenses are 72% of sales. The company's break-even point in dollar sales is
$2,450,000. If sales are $60,000 below the break-even point, the company would report a:
A. $43,200 loss B. $60,000 loss
C. $16,800 loss D. cannot be determined from the data given.
14 Last year, Black Company reported sales of $640,000, a contribution margin of $160,000, and a net loss
of $40,000. Based on this information, the break-even point was:
A. $640,000 B. $480,000 C. $800,000 D. $960,000
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

15 The break-even point in dollar sales for Rice Company is $360,000 and the company's contribution
margin ratio is 30%. If Rice Company desires a profit of $84,000, sales would have to total
A. $280,000 B. $640,000 C. $480,000 D. $560,000
16. North Company sells a single product. The product has a selling price of $30 per unit and variable
expenses of 70% of sales. If the company's fixed expenses total $60,000 per year, then it will have a break-
even of:
A. $60,000 B. $85,714 C. $42,000 D. $200,000
17 Fenestre Corporation's contribution margin ratio is 25%. The company's break-even is 80,000 units and
the selling price of its only product is $4.00 a unit. What are the company's fixed expenses?
A. $80,000 B. $320,000 C. $20,000 D. $120,000
18. Jatry Corporation's budgeted sales are $300,000, its budgeted variable expenses are $210,000, and its
budgeted fixed expenses are $60,000. The company's break-even in dollar sales is:
A. $200,000 B. $330,000 C. $210,000 D. $270,000
19. Forest Corporation has prepared the following budgeted data based on a sales forecast of $3,000,000:
variable fixed
Direct materials $
800,000
Direct labour $
700,000
manufacturing overhead $
300,000 $
450,000
Selling expenses $
120,000 $
180,000
administrative expenses $
30,000 $
70,000
What would be the amount of dollar sales at the break-even point?
A. $1,125,000 B. $2,000,000 C. $2,650,000 D. $1,750,000
20 Mardist Corporation has sales of $100,000, variable expenses of $75,000, fixed expenses of $30,000, and
a net loss of $5,000. How much would Mardist have to sell to achieve a profit of 10% of sales?
A. $187,500 B. $200,000 C. $225,500 D. $180,000 0
21. Green Company's variable expenses are 75% of sales. At a sales level of $400,000, the company's
degree of operating leverage is 8. At this sales level, fixed expenses are:
A. $87,500 B. $100,000 C. $50,000 D. $75,000
22. The following is last month's contribution format income statement:
Seles (15.000units) $1,500,000
Variable expenses 900,000
Contribution margin 600,000
Fixed cost 500,000
Net operating income 100,000
What is the company's margin of safety in dollars?
A. $100,000 B. $600,000 C. $1,500,000 D. $250,000
23Last year, Perry Company reported profits of $4,200. Its variable expenses totaled $66,000 or $6 per unit.
The unit contribution margin was $3.00. The break-even point in unit sales for Perry Company is:
A. 11,000 B. 9,600 C. 22,000 D. 12,400
24. The following data pertain to last month's operations:
Selling price $20 Per unit
Variable production cost $12 Per unit
fixed production cost $3,000
Variable selling and administrative expenses $3 Per unit
fixed selling and administrative expenses $1,500
The break-even point in dollar sales is:
A. $18,000 B. $6,000 C. $11,250 D. $7,500
 Lecture 5 Managerial Accounting ❺CVP (Decision Making)

25. Terres Corporation produces and sells a single product. Data concerning that product appear below:
Selling price Per unit $100
Variable expenses Per unit $33
fixed production expenses per month $293,460
The break-even in monthly dollar sales is closest to:
A. $889,273 B. $438,000 C. $293,460 D. $540,244
26. A product sells for $20 per unit, and has a contribution margin ratio of 40%. Fixed expenses are
$120,000. How many units must be sold to yield a profit of $30,000?
A. 18,750 B. 20,000 C. 25,000 D. 12,500
27 Harist Corporation sold 5,000 units in May. Sales were $400,000, variable expenses were $240,000, and
fixed expenses were $120,000. If the company increases its selling price by 10%, how many units would
have to be sold in June to generate a profit of $40,000?
A. 4,200 B. 4,500 C. 4,000 D. 5,000
28 Lineman Corporation sells a product for $230 per unit. The product's current sales are 23,400 units and
its break-even sales are 20,124 units. What is the margin of safety in dollars?
A. $3,588,000 B. $5,382,000 C. $753,480 D. $4,628,520
29. Knell Corporation sells a product for $230 per unit. The product's current sales are 33,000 units and its
break-even sales are 26,400 units. The margin of safety as a percentage of sales is closest to:
A. 25% B. 75% C. 20% D. 80%
30I f sales increase from $80,000 per year to $120,000 per year, and if the operating leverage is 5, then net
operating income should increase by:
A. 167% B. 250% C. 100% D. 334%
31. The following is last month's contribution format income statement:
Seles (8.000units) $800,000
Variable expenses 500,000
Contribution margin 300,000
Fixed cost 200,000
Net operating income 100,000
What is the company's degree of operating leverage?
A. 0.125 B. 8.0 C. 3.0 D. 0.333

32 – 37 The following is Addison Corporation's contribution format income statement for last month:
Seles $1,000,000
Variable expenses 700,000
Contribution margin 300,000
Fixed cost 180,000
Net operating income 120,000
The company has no beginning or ending inventories. A total of 20,000 units were produced and sold last
month.
32. What is the company's contribution margin ratio?
A. 250% B. 150% C. 70% D. 30%
33. What is the company's break-even in units?
A. 20,000 units B. 0 units C. 18,000 units D. 12,000 units
34 If sales increase by 100 units, by how much should net operating income increase?
A. $400 B. $4,800 C. $1,500 D. $2,500
35. How many units would the company have to sell to attain the target profit of $150,000?
A. 22,000 B. 37,500 C. 25,000 D. 26,667
36. What is the company's margin of safety in dollars?
A. $400,000 B. $600,000 C. $120,000 D. $880,000