Chapter 5 Homework

Mauro Products distributes a single product, a woven basket whose selling price is $12 per unit and whose variable expense is $10 per unit. The company's monthly fixed expense is $4,200. Calculate the company's break-even point in dollar sales.

$25,200 2,100 × $12 = $25,200

Last month when Holiday Creations, Incorporated, sold 37,000 units, total sales were $148,000, total variable expenses were $113,960, and fixed expenses were $37,800. What is the estimated change in the company's net operating income if it can increase sales volume by 325 units and total sales by $1,300?

$299 $1,300 × 23% = $299

Whirly Corporation's contribution format income statement for the most recent month is shown below: Sales (7,500 units): Total = $ 247,500, Per Unit = $ 33.00 Variable expenses: Total = $142,500, Per Unit = $19.00 Contribution Margin: Total = $105,000, Per Unit = $14.00 Fixed expenses = $55,100 Net operating income = $49,900 3. What would be the revised net operating income per month if the sales volume is 6,500 units?

$35,900 New Sales: 6,500 × $33 = $214,500 New Variable Expenses: 6,500 × $19 = $123,500 Contribution Margin: $214,500 - $123,500 = $91,000 $91,000 - $55,100 = $35,900

Whirly Corporation's contribution format income statement for the most recent month is shown below: Sales (7,500 units): Total = $ 247,500, Per Unit = $ 33.00 Variable expenses: Total = $142,500, Per Unit = $19.00 Contribution Margin: Total = $105,000, Per Unit = $14.00 Fixed expenses = $55,100 Net operating income = $49,900 2. What would be the revised net operating income per month if the sales volume decreases by 40 units?

$49,340 New Sales: 7,460 × $33 = $246,180 New Variable Expenses: 7,460 × $19 = $141,740 Contribution Margin: $246,180 - $141,740 = $104,440 $104,440 - $55,100 = $49,340

Whirly Corporation's contribution format income statement for the most recent month is shown below: Sales (7,500 units): Total = $ 247,500, Per Unit = $ 33.00 Variable expenses: Total = $142,500, Per Unit = $19.00 Contribution Margin: Total = $105,000, Per Unit = $14.00 Fixed expenses = $55,100 Net operating income = $49,900 1. What would be the revised net operating income per month if the sales volume increases by 40 units?

$50,460 New Sales: 7,540 × $33 = $248,820 New Variable Expenses: 7,540 × $19 = $143,260 Contribution Margin: $248,820 -$143,260 = $105,560 $105,560 - $55,100 = $50,460

Lin Corporation has a single product whose selling price is $135 per unit and whose variable expense is $81 per unit. The company's monthly fixed expense is $23,580. Calculate the dollar sales needed to attain a target profit of $9,500.

$82,700. CM Ratio = $135 - $81 = $54 $54 ÷ $135 = 0.4 ($9,500 + $23,580) ÷ 0.4 = $82,700

Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Sales: $133,000, Percent of Sales = 100% Variable expenses: $53,200, Percent of Sales = 40% Contribution margin: $79,800, Percent of Sales = 60% Fixed expenses: $16,000 Net operating income: $63,800 What is the company's degree of operating leverage?

1.25 Contribution Margin ÷ Net Operating Income $79,800 ÷ $63,800 = 1.25

Jaffre Enterprises distributes a single product whose selling price is $27 per unit and whose variable expense is $15 per unit. The company's fixed expense is $15,000 per month. Calculate the company's break-even point in unit sales.

1,250 units $27 - $ 15= $12 $15,000 ÷ $12 = 1,250

Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month's budget appear below: Selling price per unit: $29 Variable expense per unit: $14 Fixed expense per month: $12,150 Unit sales per month: 960 What is the company's margin of safety as a percentage of its sales?

15.63% $4,350 ÷ $27,480 = 0.15625 ≈ 15.63%

Mauro Products distributes a single product, a woven basket whose selling price is $12 per unit and whose variable expense is $10 per unit. The company's monthly fixed expense is $4,200. Calculate the company's break-even point in unit sales.

2,100 baskets $4,200 ÷ ($12-$10) = 2,100

Last month when Holiday Creations, Incorporated, sold 37,000 units, total sales were $148,000, total variable expenses were $113,960, and fixed expenses were $37,800. What is the company's contribution margin (CM) ratio?

23% $148,000 - $113,960 = $34,040 $34,040 ÷ $148,000 = 0.23

Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month's budget appear below: Selling price per unit: $29 Variable expense per unit: $14 Fixed expense per month: $12,150 Unit sales per month: 960 What is the company's margin of safety?

4,350. $29 × 960 = $27,480 (Total Sales) Contribution Margin: $29 - $14 = $15 $15 ÷ $29 = 0.5172 Fixed Expense ÷ CM ratio = Break-Even Sales $12,150 ÷ 0.5172 ≈ $23,490 $27,480 - $23,490 = $4,350

Lin Corporation has a single product whose selling price is $135 per unit and whose variable expense is $81 per unit. The company's monthly fixed expense is $23,580. Calculate the unit sales needed to attain a target profit of $4,500.

520 units. ($4,500 + $23,580) ÷ ($135 - $81) = 520

Data for Hermann Corporation are shown below: Selling price: Per Unit = $80, Percent of Sales = 100% Variable expenses: Per Unit = $52, Percent of Sales = 65% Contribution margin: Per Unit = $28, Percent of Sales = 35% Fixed expenses are $76,000 per month and the company is selling 4,600 units per month. Should the advertising budget be increased?

No, the advertising budget should not be increased.

Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Sales: $133,000, Percent of Sales = 100% Variable expenses: $53,200, Percent of Sales = 40% Contribution margin: $79,800, Percent of Sales = 60% Fixed expenses: $16,000 Net operating income: $63,800 Construct a new contribution format income statement for the company assuming a 19% increase in unit sales.

Sales: $158,270, Percent of Sales = 100% Variable Expenses: $63,308, % of Sales = 40% Contribution Margin: $94,962, % of Sales = 60% Fixed Expenses: $16,000 Net Operating Income = $78,962

Data for Hermann Corporation are shown below: Selling price: Per Unit = $80, Percent of Sales = 100% Variable expenses: Per Unit = $52, Percent of Sales = 65% Contribution margin: Per Unit = $28, Percent of Sales = 35% Fixed expenses are $76,000 per month and the company is selling 4,600 units per month. Should the higher-quality components be used?

Yes, the higher-quality components should be used.

Data for Hermann Corporation are shown below: Selling price: Per Unit = $80, Percent of Sales = 100% Variable expenses: Per Unit = $52, Percent of Sales = 65% Contribution margin: Per Unit = $28, Percent of Sales = 35% Fixed expenses are $76,000 per month and the company is selling 4,600 units per month. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $10,000, the monthly sales volume increases by 100 units, and the total monthly sales increase by $8,000?

decreases by $7,200. Sales = $80 × 4,600 units/month = $368,000 Variable expenses = $52 × 4,600 units/month = $239,200 Contribution Margin: $368,000 - $239,200 = $128,800 $128,800 - $76,000 = $52,800 Sales = $80 × 4,700 units/month = $376,000 Variable expenses = $52 × 4,700 units/month = $244,400 Contribution Margin: $376,000 - $244,400 = $131,600 $131,600 - $86,000 = $45,600 **$86,000 changed due to $10,000 increase in advertising expense (counts as fixed expense so add it to the original $76,000) $52,800 - $45,600 = $7,200

Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Sales: $133,000, Percent of Sales = 100% Variable expenses: $53,200, Percent of Sales = 40% Contribution margin: $79,800, Percent of Sales = 60% Fixed expenses: $16,000 Net operating income: $63,800 Using the degree of operating leverage, estimate the impact on net operating income of a 19% increase in unit sales.

net operating income increases by 23.75%. Degree of Operating Leverage × 19% 1.25 × 19% = 0.2375 = 23.75%

Data for Hermann Corporation are shown below: Selling price: Per Unit = $80, Percent of Sales = 100% Variable expenses: Per Unit = $52, Percent of Sales = 65% Contribution margin: Per Unit = $28, Percent of Sales = 35% Fixed expenses are $76,000 per month and the company is selling 4,600 units per month. Refer to the original data. How much will net operating income increase (decrease) per month if the company uses higher-quality components that increase the variable expense by $5 per unit and increase unit sales by 25%.

net operating income will increase by $3,450. 4,600 units/month × 25% = 1,150 + 4,600 = 5,750 5,750 × $80 = $460,000 5,750 × ($52 + $5) = $327,750 Contribution Margin: $460,000 - $327,750 = $132,250 $132,250 - $76,000 = $56,250 $56,250 - $52,800 (original net income) = $3,450

Mauro Products distributes a single product, a woven basket whose selling price is $12 per unit and whose variable expense is $10 per unit. The company's monthly fixed expense is $4,200. If the company's fixed expenses increase by $600, what would become the new break-even point in unit sales? In dollar sales?

new break-even point in unit sales is 2,400 baskets. $4,200 + $600 = $4,800 $4,800 ÷ (12-10) = 2,400 The new break-even point in dollar sales is $28,800. 2,400 × $12 = $28,800