E22-5, Compute contribution margin, break-even point, and margin of safety.
In the month of June, Bonita Beauty Salon gave 2,700 haircuts, shampoos, and permanents at an
average price of $30 During the month, fixed costs were $18,000 and variable costs were
70% of sales.
Instructions:
(a)(1) Determine the contribution margin in dollars.
Total Sales $81,000
Variable Cost 56,700
Contribution margin in dollars $24,300
(a)(2) Determine the contribution margin as a ratio.
Contribution margin in dollars
Total Haircuts Given
Per unit Contribution margin
(b)(1) Using the contribution margin technique, compute the breakeven point in dollars.
Breakeven sales (in dollars): Amount = Formula
Percentage
(b)(2) Using the contribution margin technique, compute the breakeven point in units.
Breakeven sales (in units): Amount = Formula units
Amount
(c)(1) Compute the margin of safety in dollars.
Margin of safety (in dollars): Amount – Amount = Formula
(c)(2) Compute the margin of safety as a ratio. (Rounded to a whole percentage.)
Margin of safety (ratio): Amount ÷ Amount = Formula
