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Compute the margin of safety in dollars

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Reference no: EM132521809

The Weather Defense Company manufactures and ships protective home barrier kits made of trampoline materials that are used by homeowners in areas affected by hurricanes. The kits are designed to be quickly installed by the homeowner in the event of a hurricane to protect their home from flying debris. Each kit costs $1,500 to manufacture. The company also pays sales staff commission of $300 for each unit sold. The company estimates that it will sell 3,500 kits this year at a selling price of $4,000 per kit. Fixed costs for the company are $2,750,000.

Question a. Prepare an contribution format income statement using the information above.

Question b. Compute the contribution margin ratio.

Question c. How much, in both units and sales dollars, must the company sell to breakeven?

Question d. Compute the margin of safety in dollars and as a percentage.

Question e. Compute operating leverage. If the company increases sales by 10%, how much will net income increase in dollars?

Reference no: EM132521809

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