
1.
Break-Even Point:
Break-even point is a point of sales where company can cover all its variable and fixed costs. It is a point of sales where revenue generated is equal to the total costs. Thus, profit is zero at this level of sales.
Contribution Margin:
Contribution margin is the excess of selling price over the variable costs of a product. It is a tool to evaluate the capability of the company to generate sufficient revenue so as to cover its variable cost.
Margin of Safety:
Margin of safety is applied in break-even analysis, which represents the amount which surpasses the break-even point.
To compute: Break-even point and margin of safety in units.
2.
a.
To compute: Change in average revenue per customer to help A Company achieve its desired margin of safety.
b.
To compute: Change in planned number of marketing plans to help A Company achieve its desired margin of safety.
c.
To compute: 5% increase in fixed cost and $2 reduction in variable cost to help A Company achieve its desired margin of safety.

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Chapter 3 Solutions
Cost Accounting (15th Edition)
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