Submitted by: Submitted by ShawnElls
Views: 400
Words: 1072
Pages: 5
Category: Business and Industry
Date Submitted: 03/21/2011 01:23 PM
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...