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

Exercise 29

Contribution Margin, CVP, Net Income, Margin of Safety
Nail Glow, Inc., produces novelty nail polishes. Each bottle sells for $5.90. Variable unit costs are as follows:

Fixed overhead costs are $34,475 per year. Fixed selling and administrative costs are $6,720 per year. Nail Glow 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? (Round to four significant digits.)
2. How many bottles must be sold to break even? What is the break-even sales revenue?
3. What was Nail Glow's operating income last year?
4. What was the margin of safety in revenue?
5. Suppose that Nail Glow, Inc., raises the price to $6.50 per bottle, but anticipated sales will drop to 28,750 bottles. What will the new break-even point in units be? Should Nail Glow raise the price? Explain.