450 600 750 Number of skateboards produced and sold Sales ($500 per unit) Variable costs($150 per unit) $225,000 $300,000 $375,000 $67,500 $90,000 $112,500 Contribution margin($350 per unit) $157,500 $210,000 $262,500 Fixed costs $150,000 $150,000 $150.000 $60,000 NOI $7,500 $112,500 $150 $150 $150 Cost per unit: Variable cost per unit Fixed cost per unit Total cost per unit $333.33 $250 $200 $483.33 $400 $350 As you can see, NOI is positive at all 3 sales levels...therefore, BEP must be below 450 units or $225.000 in sales dollars(big picture) Required: 1. Calculate the company's break-even point in units sales. Check your answer...does it fall below the 450 units? 2. Calculate the company's break-even point in dollar sales. Check your answer..does it fall below the $225,000? 3. If Hawk Inc best estimate for sales is 600 units, what is the margin of safety in units? in sales dollars? By what percentage could Hawk miss sales and still not report a NOL(hint: use MOS %)? 4. What if fixed costs should increase by $50,000. What do you expect to happen to BEP? How many additional units would you need to sell to break even? Hint: think about using incremental analysis here and using contribution margin per unit to get there