Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 16

Contribution Margin, Break-Even Units, Contribution Margin Income Statement, Margin of Safety
Zebra Company manufactures custom-designed skins (covers) for iPods® and other portable MP3 devices. Variable costs are $10.80 per custom skin, the price is $16, and fixed costs are $66,560.
Required:
1. What is the contribution margin for one custom skin?
2. How many custom skins must Zebra Company sell to break even?
3. If Zebra Company sells 13,000 custom skins, what is the operating income?
4. Calculate the margin of safety in units and in sales revenue if 13,000 custom skins are sold.