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Managerial Accounting Question

The following monthly budgeted data are available for a wholesale company:
Product L Product Z Product C
Sales $400,000 $200,000 $800,000
Variable Expenses 240,000 140,000 640,000
Contribution Margin $160,000 $ 60,000 $160,000
Budgeted net operating income for the month is $130,000. Required:

a. Calculate the break-even sales for the month.
b. Calculate the margin of safety in sales dollars.
c. Actual total sales for the month were the same as the budgeted sales--$1,400,000.

However, the sales mix changed so that sales by product were: L, $560,000; Z, $280,000; C, $560,000. Calculate the expected net operating income with this new sales mix. Explain why this net operating income figure differs from the original budget net operating income of $130,000.

Solution Preview

The following monthly budgeted data are available for a wholesale company:

Product L Product Z Product C Total

Sales $400,000 $200,000 $800,000 $1,400,000
Variable Expenses 240,000 140,000 640,000 1,020,000
Contribution Margin $160,000 $60,000 $160,000 380,000

Budgeted net operating income for the month is $130,000.

Required:

a. Calculate the break-even sales for the month.

First, we need to find the total fixed cost. As the budgeted net operating income for the month is $130,000, then we can find the total fixed cost as follows: -

Total Contribution Margin - Total Fixed Cost = Budgeted net operating income
160,000 + 60,000 + 160,000 - Total Fixed ...

Solution Summary

This solution is comprised of a detailed explanation to calculate the break-even sales for the month and the margin of safety in sales dollars.

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