Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen

Exercise 3

CONTRIBUTION MARGIN, CVP, NET INCOME, MARGIN OF SAFETY
Tintique, Inc., produces novelty nail polishes. Each bottle sells for $3.84. Variable unit costs are as follows:

Fixed overhead costs are $12,000 per year. Fixed selling and administrative costs are $6,720 per year. Tintique sold 35,000 bottles last year.
Required:
1. What is the contribution margin per unit for a bottle of nail polish? What is the contribution margin ratio?
2. How many bottles must be sold to break even? What is the break-even sales revenue?
3. What was Tintique's operating income last year?
4. What was the margin of safety in revenue?
5. Suppose that Tintique, Inc., raises the price to $4.00 per bottle, but anticipated sales will drop to 29,800 bottles. What will the new break-even point in units be? Should Tintique raise the price? Explain.