Question

The section of Waterways that produces controllers for the company provided the following information.
Sales for month of February 3,800
Variable manufacturing cost per unit $9.00
Sales price per unit $46.00
Fixed manufacturing overhead cost (per month for controllers) $82,000
Variable selling and administrative expenses per unit $4.80
Fixed selling and administrative expenses (per month for controllers) $13,130
Using this information for the controllers, determine the contribution margin ratio, the degree of operating leverage, the break-even point in dollars, and the margin of safety ratio for Waterways Corporation on this product.

Answer 1

Answer:

Instructiond are listed below.

Explanation:

Giving the following information:

Sales for the month of February 3,800

Variable manufacturing cost per unit $9.00

Sales price per unit $46.00

Fixed manufacturing overhead cost (per month for controllers) $82,000

Variable selling and administrative expenses per unit $4.80

Fixed selling and administrative expenses (per month for controllers) $13,130

A) contribution margin ratio = (selling price - unitary variable cost)/selling price

ontribution margin ratio = (46 - 13.8)/46= 0.7

B) degree of operating level= contribution margin/ EBIT

EBIT= sales - variable costs  - fixed costs= (46-13.8)*3,800 - 82,000 - 13,130= 27,230

degree of operating level= 32.2/27230= 0.0012= 0.12%

C) Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 95,130/0,7= $135,900

D) Margin of safety ratio= (current sales level - break-even point)/current sales level

Margin of safety ratio= (3,800 - 2,954)/3,800= 0.22= 22%