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    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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    https://brainmass.com/business/accounting/accounting-break-even-contribution-margin-etc-365535

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    Solution Summary

    The problem deals with topics under accounting: Break-even analysis, operating leverage analysis and contribution margin.

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