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Two companies, Ghost and Phantom manufacture similar printer color cartridges. The following data for the two companies for the year 2020 are provided below:

Ghost ($) Phantom ($)
Sales revenue 90,000 108,000
Total costs 63,000 72,000
Variable Costs 40 % of sales revenue 40%
Required:
1- Calculate the Break Even Point (BEP) in dollars for each company.
2- Calculate the percentage margin of safety for each company.
3- If sales of the product in Ghost company are equal to 3,000 units, determine the BEP (in units), and present the Break-even chart.
4- In 2020, Phantom plans to increase the variable cost by $4 while the fixed cost and the selling price will remain constant. Calculate the number of units to be sold in order to earn the same profit as Ghost in 2020 (the number of units for both Phantom and Ghost is equal to 3000).
5- Based on your answers to parts 1 and 2, Discuss which company has a safer financial position, and why.

Respuesta :

anthougo

1. The calculation of the break-even point in dollars is

                                                     Ghost ($)      Phantom ($)

Break-even Point in dollars       $45,000      $48,000

                                            ($27,000/60%)      ($28,800/60%)

2. The calculation of the percentage margin of safety is as follows:

                                                     Ghost ($)      Phantom ($)

Percentage margin of safety             50%       55.6%

                          ($45,000/$90,000 x 100)       ($60,000/$108,000 x 100)

The margin of safety = Sales revenue - break-even revenue

=                                          $45,000         $60,000

3. The determination of the break-even units in Ghosts Company is as follows:

= Fixed costs/Contribution margin per unit

= 1,500 units ($27,000/$18)

4. The calculation of the number of units to be sold for Phantom Company to increase its variable cost by $4 ($18 from $14) with the fixed cost and the selling price remaining constant is 1,600 units ($28,800/$18).

What is a break-even chart?

A breakeven chart shows the sales volume level at which total costs equal sales revenue.

In a break-even chart, losses are incurred below the break-even point, and profits are earned above the break-even point

Thus, the break-even chart plots revenue, fixed costs, and variable costs on the vertical axis, and volume on the horizontal axis.

Data and Calculations:

                                              Ghost ($)     Phantom ($)

Sales revenue                        90,000          108,000

Total costs                              63,000            72,000

Variable Costs                       40 % of sales revenue 40%

Variable costs =                    $36,000          $43,200 ($108,000 x 40%)

Contribution margin             $54,000          $64,800

Fixed costs =                         $27,000          $28,800 ($72,000 - $43,200)

Contribution margin ratio     60%                 60% (100% - 40%)

1. Break-even Point in dollars $45,000      $48,000 ($28,800/60%)

2. Percentage margin of safety 50%       55.6% ($60,000/$108,000 x 100)

The margin of safety = Sales revenue - break-even revenue

=                                          $45,000         $60,000

3. Break-even units in Ghosts Company = Fixed costs/Contribution margin per unit

= 1,500 units ($27,000/$18)

Sales price per unit = $30 ($90,000/3,000)

Variable cost per unit = $12 ($36,000/3,000)

Contribution margin per unit = $18 ($30 - $12)

4. The calculation of the number of units to be sold for Phantom Company to increase its variable cost by $4 ($18 or $14 + $4) with the fixed cost and the selling price remaining constant is 1,600 units ($28,800/$18).

Sales price per unit = $36 ($108,000/3,000)

Variable cost per unit = $18.40 ($55,200/3,000)

Contribution margin per unit = $18 ($36 - $18)

Learn more about the break-even analysis at https://brainly.com/question/21137380

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