Managerial Accounting

1a) Sales 850,000 / 50,000 = 17

Var. Man. 140,000 / 50,000 = 2.8

Var. Selling 45,000 / 50,000 = 0.9

17 – (0.9 + 2.8) = 13.3 Unit contribution margin is $13.3

b) The CM per unit should be the same as the previous months, $13.3

c) 850,000 – (140,000 + 45,000) = 665,000 (contribution margin)

Contribution margin ratio = CM/Sales = 655,000 / 850,000

Contribution margin ratio = 77%

d) BEP (units) = Fixed F.E/CM(units) = 510,000 / 13.3

BEP = 38,346 units sold

BEP ($) = Fixed Expenses / Contribution margin ratio

= 510,000 / 77%

BEP ($) = $662,337.66

e) Margin of Safety = actual sales – BEP

= 850,000 – 662,337.66

Margin of safety = $181,662.34

f) Operating Leverage = Contribution Margin / Operating income

Operating income = 665,000 – 510,000 = 155,000

665,000/155,000 = 4.29

Degree of operating leverage is 4.29

g) Next month’s sales is 40,000 which is a 20% decrease from the 50,000 from this month.

20% x 4.29 = 85.8%

If sales fell 20% profits would fall by 85.8%. Conversely, if sales increased by 20%, profits would increase by 85.8%

h) Income Statement

Sales .............................................................................680,000

Less Variable Expenses

Manufacturing.......................................................112,000

Selling......................................................................36,000

Contribution Margin.......................................................532,000

Less: Total Fixed Expenses..................................................510,000

Operating income.............................................................22,000

Operating Income previous month = 850,000 – 695,000 = 155,000

22,000 / 155,000 = 0.142

1-0.142 = 0.858 Or 85.8%

i) Clyde...