Your business sells a type of product at RM15 per unit. The contribution margin ratio is 40%. The annual fixed cost is RM48,000.
(a) Calculate the variable cost per unit.
(b) How many units must be sold to obtain profit before tax of RM12,000?
(c) Calculate the safety margin if the expected sales level is the same as (b). (You will have to calculate BEP first).
Expert Answer
Selling Price 15.00
CM Ratio 40%
Fixed Cost 48000
A Selling Price 15.00
CM Ratio 40%
Variable Cost=Selling Price(1-CM Ratio)
Variable Cost=15(1-40%)
Variable Cost= 9.00
B Desired Profit 12000
Fixed Cost 48000
Required CM 60000
CM PU 6.00 (15*40%)
Units 10000
C Fixed Cost 48000
Required CM 48000
CM PU 6.00
Units 8000
Margin of Safety:
(Current Sales Level-Breakeven Points)/Current Sales Level
(10000-8000)/8000
25.00%