Accounting: Break-even, contribution margin etc.
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The following is Alsatia Corporation's contribution format income statement for last month:
Sales $ 1,711,000
Variable expenses 991,200
________________________________________ ________________________________________
Contribution margin 719,800
Fixed expenses 408,700
________________________________________ ________________________________________
Net operating income $ 311,100
________________________________________________________________________________ ________________________________________________________________________________
________________________________________
The company has no beginning or ending inventories and produced and sold 11,800 units during the month.
Required:
a. What is the company's contribution margin ratio? (Round your answer to 3 decimal places.)
Contribution margin ratio
b. What is the company's break-even in units?
Break-even units
c. If sales increase by 110 units, by how much should net operating income increase? (Omit the "$" sign in your response.)
Increase in net operating income $
d. How many units would the company have to sell to attain target profits of $341,600?
Sales to attain target profit units
e. What is the company's margin of safety in dollars? (Omit the "$" sign in your response.)
Margin of safety in dollars $
f. What is the company's degree of operating leverage? (Round your answer to 1 decimal place.)
Degree of operating leverage
______________________________________________________________________________
A sales budget is given below for one of the products manufactured by the Key Co.:
Sales Budget in Units
January 29,000
February 44,000
March 69,000
April 49,000
May 39,000
June 34,000
________________________________________
The inventory of finished goods at the end of each month must equal 19% of the next month's sales. On December 31, the finished goods inventory totaled 5,510 units.
Each unit of product requires two specialized electrical switches. Since the production of these specialized switches by Key's suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at the end of each month equal to 37% of the next month's production needs. This requirement had been met on January 1 of the current year.
Required:
Prepare a production plan for January, February, March and in total for the quarter. (Input all amounts as positive values.)
January February March April
________________________________________ ________________________________________ ________________________________________ ________________________________________
Total needs
________________________________________ ________________________________________ ________________________________________ ________________________________________
Units to be produced
________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________
________________________________________
Calculate the quantity of switches to be purchased each month for January, February, March and in total for the quarter. (Input all amounts as positive values.)
January February March April
________________________________________ ________________________________________ ________________________________________ ________________________________________
Total needs
________________________________________ ________________________________________ ________________________________________ ________________________________________
Required purchases
________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________
________________________________________
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Solution Summary
The problem deals with topics under accounting: Break-even analysis, operating leverage analysis and contribution margin.
Education
- B. Sc., University of Nigeria
- M. Sc., London South Bank University
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