Question
Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round. The product sells at $100 per box. The
Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round. The product sells at $100 per box. The following cost data has been prepared for its estimated upper and lower limits of activity for the year ended December 31, 2020.
Lower Limit Upper Limit
Production (# of boxes) 4,000 6,000
Production Costs:
Direct Materials $60,000 $90,000
Direct Labour . 80,000 120,000
Overhead: Indirect Materials... 25,000 37,500
Indirect Labour . 40,000 50,000
Depreciation . 20,000 20,000
Selling & Administrative Expenses:
Sales Salaries 50,000 65,000
Office Salaries 30,000 30,000
Advertising 45,000 45,000
Other 15,000 20,000
Total $365,000 $477,500
e) Recompute the break-even point in units, assuming that variable costs increased by 20% and fixed costs are reduced by $50,625. How will this impact the margin of safety ratio?
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