Solution 1:
CM ratio = Contribution margin / Sales = $160,800 / $402,000 = 40%
break-even point in unit sales = Fixed expenses / CM per unit = $178,800 / $8 = 22350 units
Breakeven point in dollar sales = Fixed expenses / CM ratio = $178,800 / 40% = $447,000
Solution 2:
increase (decrease) in the company’s monthly net operating income = Increase in contribution margin - Increase in advertising expenses
= ($80,000*40%) - $6,500 = $25,500
Solution 3:
New selling price per unit = $30*90% = $27
New CM per unit = $12 - $3 = $9 per unit
New fixed costs =$178,800 + $33,000 = $211,800
New sales volume = 13400*2 = 26800 units
New operating income = Contribution margin - Fixed costs = (26800*$9) - $211,800 = $29,400
Solution 4:
New contribution margin per unit = $12 - $0.60 = $11.40 per unit
Target income = $4,600
Nos of units to be sold to attain target profit = (Fixed cost + Net operating income) / CM per unit
= ($178,800 + $4,600) / $11.40 = 16088 units
Solution 5a:
New CM per unit = $12 +$3 = $15 per unit
New fixed costs = $178,800 + $53,000 = $231,800
New CM ration = $15 / $30 = 50%
New break even point in units = $231,800 / $15 = 15453 units
Breakeven point in dollar sales = $231,800 / 50% = $463,600
Solution 5b:
Contribution format income statement - Operation Automated | |||
Particulars | Per unit | % | Total |
Sales | $30.00 | 100% | $600,000.00 |
Variable costs | $15.00 | 50% | $300,000.00 |
Contribution margin | $15.00 | 50% | $300,000.00 |
Fixed costs | $231,800.00 | ||
Net operating income | $68,200.00 |
Contribution format income statement - Operation not Automated | |||
Particulars | Per unit | % | Total |
Sales | $30.00 | 100% | $600,000.00 |
Variable costs | $18.00 | 60% | $360,000.00 |
Contribution margin | $12.00 | 40% | $240,000.00 |
Fixed costs | $178,800.00 | ||
Net operating income | $61,200.00 |
Solution 5c:
As net income is increasing, therefore company should automate its operations.
Problem 5-22 CVP Applications; Contribution Margin Ratio; Break-Even Analysis; Cost Structure (LO5-1, LO5-3, LO5-4, LO5-5, LO5-6)...
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