Accounting: What the Numbers Mean
Accounting: What the Numbers Mean
12th Edition
ISBN: 9781308841380
Author: David H. Marshall, Wayne W. McManus, Daniel F. Viele
Publisher: McGraw Hill
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Chapter 12, Problem 12.5ME
To determine

1.

Concept Introduction:

Break-even point:

The break-even point can be defined as the point where the total sales revenue is equal to the total costs involved. The break-even point is calculated as −

Break-even point (in Units) −

Break-even point in Units=Fixed costContribution margin per unit

Break-even point (in Dollars) −

Break-even point (in Dollars)=Fixed costContribution margin ratio

To calculate:

Bay Area Cycle's break-even point in units and in dollars

To determine

2.

Concept Introduction:

Margin of Safety:

Margin of safety can be defined as the amount of sales revenue over and above the break-even point. The break-even point is the point of sales revenue where totals costs are equal to total revenue. All the sales above break-even point are termed as margin of safety.

The margin of safety is calculated as under −

Margin of safety = Actual sales – Break-even point of sales

To compute: Margin of safety and margin of safety ratio

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