## Answers

1) | |

Break-even point in units | 4,160 |

Break-even point in dollars | $416,000 |

2) | |

Margin of safety | $104,000 |

Margin of safety ratio | 20% |

**Working notes:**

1)

Break-even point in units = Fixed cost / Contribution margin per unit

Contribution margin = Operating income + Fixed cost

= $26,000 + $104,000

= $130,000

If sales is 100%

Contribution margin ratio (given) is 25%

Variable cost to sales ratio is 75% (100% - 25%)

If contribution margin is $130,000 at 25%

Sales at 100% is $520,000 (100 * $130,000 / 25)

Sales in units = $520,000/$100 per unit

= 5,200 units

Contribution margin per unit = $130,000/5,200 units

= $25 per unit

Therefore, Break-even point in units = $104,000/$25 per unit

= 4,160 units

**Hence, break-even point in units is 4,160.**

Break-even point in dollars = Fixed cost / contribution margin ratio

= $104,000/0.25

= $416,000

**Therefore, break-eve point in dollars is $416,000.**

**2)**

Margin of safety = Total sales revenue - Break-even point in dollars

= $520,000 - $416,000

= $104,000

**Therefore, margin of safety is $104,000.**

**Margin of Safety ratio = Margin of safety / Total sales * 100**

**= $104,000 / $520,000 * 100**

**= 20%**

**Therefore, margin of safety ratio is 20%.**