Compute breakeven sales. (Use the rounded contribution margin ratio calculated in the previous part to compute breakeven sales.) Breakeven sales eTextbook and Media Save for Later (b2) $ What is Pharoah's margin of safety? Margin of safety $
Compute breakeven sales. (Use the rounded contribution margin ratio calculated in the previous part to compute breakeven sales.) Breakeven sales eTextbook and Media Save for Later (b2) $ What is Pharoah's margin of safety? Margin of safety $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:**Breakeven Analysis and Margin of Safety**
**Breakeven Sales Calculation**
To compute the breakeven sales, make use of the rounded contribution margin ratio that was calculated in the previous part. This will allow you to determine the minimum sales required to cover all fixed and variable costs, ensuring no net loss or profit.
Breakeven Sales: $ _________
**eTextbook and Media**
Option to save the current calculations or resources for later use.
**Margin of Safety Estimation**
Understanding Pharoah's margin of safety is crucial. It measures how much sales can drop before the company reaches its breakeven point. This serves as an indicator of financial stability and risk.
Margin of Safety: $ _________
For further details or interactive content, please refer to supplementary educational resources provided in the eTextbook and Media section.
Transcribed Image Text:Pharaoh sells a learning system that helps preschool and elementary students learn basic math facts and concepts. The company's income statement from last month is as follows:
| Description | Total | Per Unit |
|-----------------------|------------|----------|
| Sales revenue | $756,000 | $54 |
| Variable expenses | 264,600 | 18.90 |
| Contribution margin | 491,400 | $35.10 |
| Fixed expenses | 282,750 | |
| Operating income | $208,650 | |
**Explanation:**
This table represents the company's financial performance for the last month.
- **Sales Revenue** is the total income from sales, which amounts to $756,000, with each unit priced at $54.
- **Variable Expenses** are costs that vary with the level of output, totaling $264,600, or $18.90 per unit.
- **Contribution Margin** is calculated by subtracting variable expenses from sales revenue, which gives $491,400, or $35.10 per unit. It indicates the amount available to cover fixed expenses and generate profit.
- **Fixed Expenses** are costs that do not change with sales volume, totaling $282,750.
- **Operating Income** is the profit after all expenses are deducted, resulting in $208,650.
Expert Solution
Step 1: Introducing Breakeven Point of Sales
BREAKEVEN POINT
Break Even means the volume of production or sales where there is no profit or loss.
In other words, Break Even Point is the volume of production or sales where total costs are equal to revenue.
Breakeven Point in Units
= Fixed Cost ÷ Contribution Margin Per Unit
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