Break-even analysis Technical Query

Good afternoon

Firstly, I would like to express my genuine thanks for producing high quality CIMA tuition videos and study resources that are profoundly beneficial to CIMA students as it provides in-depth and comprehensive insights on the component learning outcomes that facilitates the learning process.

I am a CIMA Operational Level student who is currently studying for CIMA P1 Management Accounting. My query is based on Kaplan Exam Practice kit for P1: Management Accounting.

Q190 R Company provides a single service to its customers. An analysis of its budget for the year ending 31 December 20X5 shows that in period 3, when the budgeted activity was 6,570 service units with a sales value of $72 each, the margin of safety was 21.015%.

The budgeted contribution to sales ratio of the service is 35%.

Budgeted fixed costs in period 3 were nearest to:

A $115,000
B $131,000
C $145,000
D $157,000

SOLUTION SPECIFIED IN THE EXAM PRACTICE KIT :

B $131,000

If the margin of safety budgeted in period 3 is 21.015%, then the breakeven number of units in the period is:

6,570 – (6,570 × 21.015%) = 5,189 units

At this level, contribution is equal to the level of fixed costs.
Contribution at this volume is:

5,189 × 35% × $72 = $130,763.

So fixed costs are $130,763 (which is nearest to B, i.e. $131,000).

Can I kindly request for a brief explanation pertaining to the above question as the solution suggests that in order to find the contribution, breakeven (units) is multiplied with C/S ratio and sales value? Margin of safety computation is fairly clear but I am unable to decipher the rationale behind the calculation of contribution.

Look forward to hearing from you.

Kind Regards
Nimmy Anna