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For Neo… Understanding break-even relationships. Easy writer manufactures an erasable ballpoint pen, which sells for \$1.75 per unt. Management recently finished analyzing th results of he company’s operations for the current month. At a break-even point of 40,000 units, the company’s total variable costs are \$50,000 and its total fixed costs amount to \$20,000. a) Calculate the contribution margin per unit. b) Calculate the company’s margin of safety if monthly sales total 45,000 units. c) Estimate the company’s monthly operation loss if it sells only 38,000 units. d) compute the total cost per unit at a production level of (1) 40,000 pens per month and (2) 50,000 pens per month. Explain the reason for the change in unit costs.
Answer a) Contribution Margin per unit Sale preice per unit 1.75 Variable cost per unit 50000/40000 1.25 Contribution Margin per unit 0.50 Answer b) Margin of safety Margin of safety = Actual sales – breakeven sales Breakeven = fixed cost/contribution per unit Break even = 20000/0.50 Breakeven = 40000 Units Margin of safety = 45000-40000 Margin of safety = 5000 units Answer c) Monthly operational loss, If sales is 38000 units Sale 38000 Contribution per unit 0.50 Total contributon 19000 Fixed cost 20000 Opertinal Loss…

000) Answer d) Total Cost per unit at Production (units) 40000 50000 Variable cost per unit 1.25 1.25 Total variable cost 50000 62500 Fixed cost 20000 20000 Total cost 70000 82500 Total cost per unit 1.75 1.65 Total cost/ no. of units As production increase total cost decerase due to fixed cost remain the same on the increase of production of units.

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