Ruiz Company produces and sells a product that has variable costs of $50 and a selling price of $90. Its current sales total $270,000 per month. Fixed manufacturing costs total $40,000 per month and fixed selling and administrative costs total $35,000 per month. Required:1) Compute the company's current break-even point in units.2) Compute the company's current income and margin of safety in dollars.
What will be an ideal response?
1) Current break-even point in units = $75,000 ÷ ($90 - $50) = 1,875 units.
2) Current income and margin of safety:
Net income = {($270,000 ÷ $90) × $40} - ($40,000 + $35,000) = $120,000 - $75,000 = $45,000
Margin of safety = $270,000 - (1,875 × $90) = $270,000 - $168,750 = $101,250
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