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I am looking for help on the following question…
A company manufactures and sells a product XY, for £56 per unit. In March the budgeted volume was 7200 units, the margin of safety was 26.2%, the budgeted contribution to sales ratio is 21%
What is the budgeted fixed costs for March?
At breakeven, the contribution will equal the fixed costs.
So first you need to find breakeven sales volume. The margin of safety is (budget – breakeven) / breakeven x 100%.
So for every 100 breakeven, the budget must be 126.2.
Since the budget is 7,200, the breakeven volume must be 100/126.2 x 7200 = 5705.23Now you can calculate the breakeven sales revenue (at $56 per unit).
Then you can calculate the breakeven contribution – 21% of revenue – and this will be equal to the fixed costs.
Dear John,
Pls check your formular
The margin of safety is (budget – breakeven) / breakeven x 100%.The correct “the margin of safety is= (budget-breakeven)/budgetx100%
FC= $ 62,487.9?
Oooops!
Thank you Thuy – you are correct. (It was too early in the morning when I answered before 🙂 )
The correct figure for fixed costs is indeed $62488
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