Question

Show all supporting computations. 1. Hurst Co, manufacturers and sells a single product. Price and cost data regarding this product are as follows: Selling price.. Variable manufacturing costs.............. Variable selling and administrative expenses........ Fixed manufacturing overhead....... Fixed selling and administrative expenses......... $40 per unit $20 per unit $6 per unit $208,000 per year $324.000 per year a. What is Hurst's Contribution Margin per unit? What is their contribution Margin Ratio? b. What is Hurst's break-even point in Units and in Dollars? c. How many units would Hurst Co. need to sell to make a target profit of $16,850? What would their sales dollars be at this level? d. What is the margin of safety in units and dollars assuming a current sales level of 43,480 units? e. Using the current sales level of 43,480, what is the operating leverage? Use the operating leverage to predict the increase in net income if sales increase by 20%. Prove the percentage increase predicted by preparing a contribution margin format income statement.

Answer 1

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Answer 1) Parta) Contribution Margin per unit = sale price - variable cost = 40-20-6 = $ 14 Contribution margin ratio = contribution margin per unit/ sale price = 14/40*100 = 35 % Thus the final answer is Contribution Margin = $ 14 Contribution Margin Ratio = 35% Break even point in units = Fixed cost total / contribution margin per unit = (208000+324000) /14 = 38000 Units Break even dollar sales = break even units * selling price = 38000*40 = $ 1520000 Thus the final answer is Break even sales = $ 1520000 Break even units = 38000 Units

Number of unit to be sold to earn desired profit = (fixed cost + desired profit)/ contribution margin per unit = (208000+324000+16850)/14 = 39204 Units Desired dollar sales = desired units to be sold * selling price = 39204*40 = $ 1568160 Thus the final answer is Desired sales in units = 39204 units Desired dollar sales = $ 1568160 Margin of safety in units = sales in units - break even sales = 43480 - 38000 = 5480 Units Margin of safety in dollars = margin of safety units * selling price = 5480*40 = $ 219200 Thus the final answer is Margin of safety units = 5480 Units Margin of safety in dollars = $ 219200