33,000 units (July sales) ÷ 1.10 = 30,000 units sold in June.
To determine the sales in dollars, we must integrate the break-even
point, the margin of safety in dollars, and the margin of safety per-
centage. The computations are:
Margin of safety in dollars=Total sales - Break-even sales
=Total sales - $180,000
Margin of safety in dollars
Margin of safety = percentage (20%) Total sales
If the margin of safety in dollars is 20% of total sales, then the break-
even point in dollars must be 80% of total sales. Therefore, total
sales would be:
$180,000 =80%
Total sales
Total sales = $180,000÷80%
= $225,000
The selling price per unit would be:
$225,000 total sales ÷ 30,000 units = $7.50 per unit.
The second step is to determine the total contribution margin for the
month of June. This can be done by using the operating leverage
concept. Note that a 10% increase in sales has resulted in a 50% in-
crease in net operating income between June and July:
July increased net income $40,500 - $27,000 $13,500 = = =50%
June net income $27,000 $27,000
Case 6-32 (continued)
Since the net operating income for July increased by 50% when sales
increased by 10%, the degree of operating leverage for June must be
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