Easywriter manufactures an erasable ballpoint pen, which sells for $1.75 per unit. management recently finished analyzing the results of the company's operations for the current month. at a break-even point of 40,000 units, the company's total variable costs are $50,000 and its total fixed costs amount to $20,000.

a. calculate the contribution margin per unit. (round your answer to 2 decimal places.)

b. calculate the company's margin of safety if monthly sales total 45,000 units.

c. estimate the company's monthly operating loss if it sells only 38,000 units. d-1. compute the total cost per unit at a production level of 40,000 pens per month. (round your answer to 2 decimal places.) d-2. compute the total cost per unit at a production level of 50,000 pens per month.

The Income Statement is the financial statement prepared at the end of the financial year to determine the amount of net profit earned during the specified period. It records sales, variable costs, and fixed costs.

a. Computation of contribution margin per unit:

[tex]\begin{aligned}\rm{Contribution\;Margin\;per\;unit}&=\rm{Selling\;Price\;per\;unit}-\rm{\dfrac{\rm{Total\;Variable\;Cost}}{\rm{Breakeven\;units}}}\\&=\$1.75-\dfrac{\$50,000}{40,000}\\&=\$0.50\end{aligned}[/tex]

Thus, the contribution margin per unit is $0.50.

b. The computation of margin of safety:

[tex]\begin{aligned}\text{Margin of Safety}&=\text{Expected Sales}-\text{Breakeven Sales}\\&=(45,000 \;\text{units}\times \$1.75 \;\text{per unit}) - (40,000 \;\text{units}\times \$1.75 \;\text{per unit})\\&=\$78,750 - \$70,000\\& = \$8,750\end{aligned}[/tex]

Thus, the margin of safety is $8,750.

c. The computation of operating loss:

The computation of Operating loss for the month having sales of 38,000 units is shown in the image below.

Thus, the operating loss is $1,000.

d-1. Computation of total cost per unit at a production level of 40,000:

The total cost per unit for the production level of 40,000 units will be equal to the selling price at the breakeven point of 40,000, that is $1.75 per unit

d-2. Computation of total cost per unit at a production level of 50,000:

[tex]\begin{aligned}\text{Total Cost per unit}&=\dfrac{\text{Fixed Cost+Variable Cost}}{\text{Production Level}}\\&=\dfrac{\$20,000+(\frac{\$50,000}{40,000}\times50,000)}{50,000}\\&=\dfrac{\$20,000+\$62,500}{50,000}\\&=\$1.65\;\rm{per\;unit}\end{aligned}[/tex]

Thus, the total cost per unit at 50,000 units is $1.65.

Learn more about the income statement, here:

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