1. Craigco has a relevant range between $100,000 and $750,000 in sales. It’s 2019 results are as follows:
2. Craigco
3. Contribution Margin Income Statement
4. Dec. 31, 2019
5. Sales Revenue                                   450,000
6. Less: Variable Expenses                  202,500
7. Contribution Margin                        247,500
8. Less Fixed Expenses                        180,000
9. Operating Income                              67,500
10. Prepare contribution margin income statements at sales levels of $200,000 and $550,000.
11. Ans: Sales revenue                        200,000             550000
12. Less-Variable Expenses                  90,000             247500
13. Contribution Margin                      110000             302500
14. Less: Fixed Expense                       180000             180000
15. Operating Income                         (70,000)             122500
16. Variable expense =202500/450000*200,000=90,000
17. Variable expense =202500/450000*550000=247500

2. Compute Break-even sales in dollars

1. Ans: Break -even sales in dollars=Fixed costs/Contribution margin ratio
2. Contribution margin ratio=Contribution margin/sales=247500/450000=0.55
3. Break-even sales in dollars= 1,80000/0.55=327272.72

3. What is Craigco’s margin of safety as a percent of sales?

1. Ans: Margin of safety as a percent of sales: (Sales level-Break even point)/Sales level*100=(450000-327272.72)/450000*100=27.27%

4. What is Craigco’s margin of safety in dollars?

1. Ans: Margin of safety in dollars=450000-327272.72=122727.28

5. Assuming each unit sells for $45 what is Craigco’s margin of safety in units?

6. What is operating leverage factor at $450,000 in sales?

7. By what percent will Craigco’s operating income fall if sales go down by 10%?

Answer rating: 100% (QA)

Margin of safety in units1227272845273149 Operating leverage factor at 450000 in salesOperating incomeContribution Margin675002475000273 By percent wi... View the full answer