Break Even Units, Contribution Margin Ratio, Multiple Product Breakeven, Margin of Safety, Degree of Operating Leverage...

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Break Even Units, Contribution Margin Ratio, Multiple Product Breakeven, Margin of Safety, Degree of Operating Leverage Jelli

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Answer 1

Answer #1

1(a) VARIABLE COST PER UNITE =6030000/450000 =$13.4 PER UNIT

1(b) CONTRIBUTION MARGIN PER UNIT =2970000/450000 = 6.6 PER UNIT

1(c) CONTRIBUTION MARGIN RATIO = CONTRIBUTION/SALES MULTIPLIED BY 100

CONTRIBUTION = 2970000

SALES = 9000000

= 2970000/9000000 MULTIPLIED BY 100

= 33%

1(d) BREAK- EVEN POINT IN UNITS = FIXED COST / CONTRIBUTION PER UNIT

FIXED COST = 1898820

CONTRIBUTION PER UNIT = 6.6

= 1898820 / 6.6 =287700 UNITS

1(e) BREAK-EVEN POINT IN SALES DOLLARS

= FIXED COST / SALES - VARIABLE COST MULTIPLIED BY SALES

=1898820 / 9000000 - 6030000 MULTIPLIED BY 9000000

= $5754000

2. UNITS FOR A DESIRED PROFIT = FIXED COST + DESIRED PROFIT / CONTRIBUTION PER UNIT

FIXED COST = $ 1898820

DESIRED PROFIT = $ 246180

CONTRIBUTION PER UNIT = 6.6

=1898820 + 246180 / 6.6 = 325000 UNITS

3. ADDITIONAL OPERATING INCOME

UNITS = 452500 (45000 + 2500) 50000 / 20 =2500

SALES (452500 UNITS) 9050000

TOTAL VARIABLE COST (452500 MULTIPLIED BY 13.4) 6063500

CONTRIBUTION MARGIN 2986500

TOTAL FIXED COST 1898820

OPERATING INCOME 1087680

ADDITIONAL INCOME = 1087680 - 1071180 = 16500

4. MARGIN OF SAFETY IN UNITS = TOTAL SALES IN UNITS - BREAK EVEN SALES IN UNITS

TOTAL SALES 450000

BREAK EVEN SALES = 287700

MARGIN OF SAFTY = 450000 - 287700 = 162300 UNITS

5. BASED ON QUESTION NO.3

DEGREE OF OPERATING LEVERAGE = % CHANGE IN EARNING BEFORE INTEREST AND TAX / % CHANGE IN SALES

% CHANGE IN EARNING = 16500 / 1071180 MULTIPLIED BY 100 = 1.54 %

% CHANGE IN SALES = 50000 / 9000000 MULTIPLIED BY 100 = 0.56 %

DEGREE OF OPERATING LEVERAGE = 1.54 / 0.56 = 2.75

SALES 450000 + 10 % OF 450000 = 495000 MULTIPLIED BY 20 = 9900000

TOTAL VARIABLE COST = 495000 MULTIPLIED BY 13.4 = 6633000

CONTRIBUTION = 3267000

TOTAL FIXED COST = 1898820

OPERATING INCOME = 1368180

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