Bing Company's contribution margin income statement is presented below. Sales for the current period consisted of 7,500 units. Compute the company's break-even point in (a) units, and (b) dollars. Compute the margin of safety in (c) dollars and (d) percent.
Per unit costs:
Sales price = $225,000/7,500 = $30
Variable cost = $135,000/7,500 = $18
Contribution margin per unit = $30 - $18 = $12 per unit
Contribution margin ratio = ($30 — $18)/$30 = .40
(a) Break-even in units = $48,000/$12 = 4,000 units
(b) Break-even in dollars = $48,000/.40 = $120,000 (or 4,000 units × $30)
(c) Margin of safety in dollars = $225,000 — $120,000 = $105,000
(d) Margin of safety in percent = $105,000/$225,000 = 46.7%
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