Question

Normal No Spacing Heading 1 Heading 2 Ramada Company produces one golf cart model. A partially complete table of company costs follows: 400 600 800 $ Number of golf carts produced and sold Total costs Variable costs Fixed costs per year Total costs Cost per unit Variable cost per unit Fixed cost per unit Total cost per unit $ 384,000 144,000 528,000 Required: 1. Complete the table. 2. Ramada sells its carts for $1,600 each. Prepare a contribution margin income statement for each of the three production levels given in the table. 4. Calculate Ramada's break-even point in number of units and in sales revenue. 5. Assume Ramada sold 200 carts last year. Without performing any calculations, determine whether Ramada earned a profit last year. 6. Calculate the number of carts that Ramada must sell to earn $48,000 profit. 7. Calculate Ramada's degree of operating leverage if it sells 650 carts. 8. Using the degree of operating leverage, calculate the change in Ramada's profit if sales are 15 percent less than expected. Using the degree of operating leverage, calculate the change in Ramada's profit if sales are 15 percent less than expected. (Round your answer to 3 decimal places. (i.e. .12345 should be entered as 12.345%.>> Effect on Profit Ramada sells its carts for $1,600 each. Prepare a contribution margin income statement for each of the three production levels given in the table. Golf Carts Produced and Sold 400 units 600 units 800 units Contribution Margin o Focus

Answer 1

Ramada Company Requirement 1 600 units 800 units 1000 units Golf Carts Produced and sold Total Costs Variable costs Fixed costs per year Total Costs Cost per unit Variable cost per unit Fixed costs per unit Total Cost per unit 288000 144000 432000 384000 144000 528000 480000 144000 624000 480 480 240 720 480 144 180 660 624 Requirement 2 Golf Carts Produced and sold 600 units 800 units Sales Revenue(1600 x units sold) 960000 1280000 Less:Variable cost (480 x units sold) 288000 384000 Contribution Margin 672000 896000 Less:Fixed Costs 144000 144000 Income from Operations 528000 752000 1000 units 1600000 480000 1120000 144000 976000 Requirement 4 Break even point in units = 144000/(1600 - 480 ) = 128.57 Break even point in dollars = 144000/(1600 - 480)/1600 = 144000/0.7 = 205714

Requirement 5 Since 200 units > 128.57 (breakeven units )Ramada di earn a profit last year. Requirement 6 Target Sales in units = ( 144000 + 48000)/(1600 - 480) = 192000 / 1120 = 171 carts Requirement 7 Degree of Operating Leverage = Contribution Margin / Profit Contribution Margin (650 carts x 1120) Less:Fixed costs Profit 728000 144000 584000 DOL = 728000 / 584000 = 1.25 Requirement 8 Effect on Profit = Change in Sales x Degree of Operating Leverage = 15% x 1.25 = 18.75% Thus a 15% decrease in sales will result in a 18.75% decrease in profit for Ramada.