Question

Marketing Docs prepares marketing plans for growing businesses. For 2017, budgeted revenues are $1,500,000 based on 500 marketing plans at an average rate per plan of $3,000. The company would like to achieve a margin of safety percentage of at least 45%. The company’s current fixed costs are $400,000 and variable costs average $2,000 per marketing plan. (Consider each of the following separately.)
Required:
1. Calculate Marketing Docs breakeven point and margin of safety in units.

Answer 1

Answer:

Break even points = 400 units

margin of safety = $100

Explanation:

Given data:

budget revenue in 2017 = $1,500,000

Fixed cost =$400,000

total marketing plan = 500

take contribution margin/unit =  Revenue - variable cost

                                                 = 3000 - 2000

contribution margin/unit = $1000

take break even sales $400

break even point  $= \frac{ Fixed cost}{contribution\ margin\ per\ unit}$

Break even point $= \frac{400,000}{1000} = 400 units$

margin of safety is calculated as

margin of safety  = total quantity to be sold - break even sales

                             = 500 - 400 = $100