Chapter 7, Problem 64P

Suppose that Kicker had the following sales and cost experience (in thousands of dollars) for May of the current year and for May of the prior year:

In May of the prior year, Kicker started an intensive quality program designed to enable it to build original equipment manufacture (OEM) speaker systems for a major automobile company. The program was housed in research and development. In the beginning of the current year, Kicker’s accounting department exercised tighter control over sales commissions, ensuring that no dubious (e.g., double) payments were made. The increased sales in the current year required additional warehouse space that Kicker rented in town. (Round ratios to four decimal places. Round sales dollars computations to the nearest dollar.)

Required:

1. 1. Calculate the contribution margin ratio for May of both years.
2. 2. Calculate the break-even point in sales dollars for both years.
3. 3. Calculate the margin of safety in sales dollars for both years.
4. 4. CONCEPTUAL CONNECTION Analyze the differences shown by your calculations in Requirements 1, 2, and 3.