ACCY-Chapter 5 Homework

Mauro Products distributes a single product, a woven basket whose selling price is $20 per unit and whose variable expense is $18 per unit. The company's monthly fixed expense is $3,800. Required: 1. Calculate the company's break-even point in unit sales. 2. Calculate the company's break-even point in dollar sales. (Do not round intermediate calculations.) 3. If the company's fixed expenses increase by $600, what would become the new break-even point in unit sales? In dollar sales? (Do not round intermediate calculations.)

1. Break Even Point (Unit Sales) = Fixed Cost / Contribution Margin Per Unit = Fixed Cost / (Sales Price Per Unit - Variable Expense Per Unit) =3,800/(20-18)= 1,900 2. Break Even Point (Dollar Sales) = Break Even Units * Selling Price Per Unit =1,900*20= 38,000 3. New fixed cost=(3,800+600)= 4,400 Hence new breakeven point=4,400/2= 2,200 2,200*20= 44,000

Atlas Corporation sells 100 bicycles during a month. The contribution margin per bicycle is $200. The monthly fixed expenses are $8,000. What is the profit from the sale of 100 bicycles?

200*100= 20,000 Total contribution margin - Fixed expenses = $20,000 - $8,000 = $12,000

Menlo Company distributes a single product. The company's sales and expenses for last month follow: Sales$ 628,000 $ 40 per unit Variable expenses 439,600 28 per unit Contribution margin 188,400$ 12 per unit Fixed expenses 154,800 Net operating income$ 33,600 Required: 1. What is the monthly break-even point in unit sales and in dollar sales? 2. Without resorting to computations, what is the total contribution margin at the break-even point? 3-a. How many units would have to be sold each month to attain a target profit of $61,200? 3-b. Verify your answer by preparing a contribution format income statement at the target sales level. 4. Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms. 5. What is the company's CM ratio? If the company can sell more units thereby increasing sales by $96,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?

1. Break-even point in units = Fixed cost / Contribution margin 154,800/12= 12,900 Break-even point in dollars = Break-even point in units * Selling price per unit = 12,900*40= 516,000 2. The total contribution margin is equal to the total fixed cost on the breakeven level of sales= 154,800 3a. Sales units for target profit = (Fixed cost + Target profit) / Contribution margin per unit 154,800+61,200/12= 18,000 3b. 4. Margin of safety in dollars = Actual sales - Break-even sales in dollars =628,000-516,000= 112,000 Margin of safety ratio = Margin of safety / Actual Sales * 100 =112,000/628,000*100= 17.83 5. Contribution margin (CM) ratio = Contribution margin per unit / Selling price per unit * 100 =12/40*100= 30% Incremental contribution margin = Increase in sales * Contribution margin ratio =96,000*30%= 28,800

Income Statement Sales 100,000 Variable expenses 50,000 Contribution margin = 50,000 Fixed expenses 20,000 Net operating income= 30,000 If sales increase by $50,000, what will be the net operating income for the company?

Contribution margin = $50,000/$100,000 = 50% Profit = (CM Ratio × Sales) − Fixed Expenses = (50% × $150,000) − $20,000= $55,000.

Last month when Holiday Creations, Incorporated, sold 43,000 units, total sales were $172,000, total variable expenses were $141,040, and fixed expenses were $38,300. Required: 1. What is the company's contribution margin (CM) ratio? 2. What is the estimated change in the company's net operating income if it can increase sales volume by 550 units and total sales by $2,200?

Contribution margin = sales - variable costs: $172,000 - $141,040= $30,960 Contribution margin ratio = Contribution margin / sales: $30,960/ $172,000= $18% Variable expenses/Sold units: 141,040/43,000 = 3.28 per unit 43,000+550= 43,550 172,000+2,200= 174,200 43,000*3.28= 141,040 174200-141,040= 33,160 30,960-38,300= 7,340 33,160-38,300= 5,140 Estimated change: 7,340-5,140= 2,200

Taylor Company has current sales of 1,000 units, which generates sales revenue of $190,000, variable costs of $76,000, and fixed expenses of $96,000. The company believes sales will increase by 300 units, if advertising increases by $20,000. What is the change in net operating income after the changes?

Contribution margin per unit = ($190,000 − $76,000)/1,000 units = $114 per unit $114 x 300 units = $34,200 Less increase in fixed costs -$20,000Change in net operating income = $14,200

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's contribution margin ratio?

Contribution margin ratio = Contribution margin/Sales = ($50 − $20) = 30 30-5,000*100= 60%

1. What would be the revised net operating income per month if the sales volume increases by 90 units? 2. What would be the revised net operating income per month if the sales volume decreases by 90 units? 3. What would be the revised net operating income per month if the sales volume is 7,900 units?

Net operating income= 61,600 Increased contribution= 90*13= 1,170 Revised Net Income= 62,770 Net operating income= 61,600 Reduced contribution= 1,170 Revised Net Income= 60,430 Sales=7,900*32 252,800 variable expenses= 7,900*19= 150,100 Contribution margin= 115,700-13,000= 102,700 Less fixed expenses= 54,100 Net Operating income= 48,600

Atlas Corporation sells 100 bicycles during a month at a price of $500 per unit. The variable expenses amount to $300 per bicycle. How much does profit increase if it sells one more bicycle?

Selling price per bicycle - Variable costs per bicycle = $500 - $300 = $200

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's variable cost ratio?

Variable expense ratio = Variable expenses/Sales = $20/$50 = 40%.

Break-even point is the level of sales at which ______.

total revenue equals total costs

Once the break-even point has been reached, net operating income will increase by the amount of the _____ for each additional unit sold.

unit contribution margin