Magnificent Modems, Incorporated makes modem cards that are used in notebook computers. The company completed the following transactions during Year 1. All purchases and sales were made with cash:
1. Acquired $750,000 of cash from the owners.
2. Purchased $270,000 of manufacturing equipment. The equipment has a $30,000 salvage value and a four-year useful life.
3. The company started and completed 5,000 modems. Direct materials purchased and used amounted to $40 per unit. Direct labor costs amounted to $25 per unit. The cost of manufacturing supplies used amounted to $4 per unit.
4. The company paid $50,000 to rent the manufacturing facility.
5. Magnificent sold all 5,000 units at a cash price of $120 per unit. The sales staff was paid a $6 per unit sales commission.
6 Paid $39,000 to purchase equipment for administrative offices. The equipment was expected to have a $3,000 salvage value and a three-year useful life.
7. Administrative expenses consisting of office rental and salaries amounted to $71,950.
Use the following partially completed form to prepare an income statement using the contribution margin format. Determine the break-even point in units and in dollars. Assume that next year’s sales are budgeted to be the same as the current year’s sales. Determine the margin of safety expressed as a percentage.
