Break-even point, contribution margin ratio, margin of safety ratio

Calculating break-even point, contribution margin ratio, and margin of safety ratio

Limerick Enterprises, Inc., is considering building a manufacturing plant in Dublin. Predicting sales of 100,000 units, Limerick estimates the following expenses: 

Total Annual Expenses

Percent of Total Annual Expenses That Are Fixed

Materials

$19,000

10%

Labor

26,000

20%

Overhead

40,000

40%

Marketing and administration

14,000

60% 

$99,000 

An Irish firm that specializes in marketing will be engaged to sell the manufactured product and will receive a commission of 10% of the sales price. None of the U.S. home office expense will be allocated to the Irish facility.

Required:

1. If the unit sales price is $2, how many units must be sold to break even?

2. Calculate the margin of safety ratio.

3. Calculate the contribution margin ratio.