Question

Required information (The following information applies to the questions displayed below.] Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company sells its product to retailers throughout the northeastern quadrant of the United States. It is in the process of creating a master budget for 2017 and reports a balance sheet at December 31, 2016 as follows: $ 46,200 260,000 11,250 32,250 $349,700 Endless Mountain Company Balance Sheet December 31, 2016 Assets Current assets: Cash Accounts receivable (net) Raw materials inventory (4,500 yards) Finished goods inventory (1,500 units) Total current assets Plant and equipment: Buildings and equipment Accumulated depreciation Plant and equipment, net Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Stockholders' equity: Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 900,000 (292,000) 608,000 $957,700 $ 158,000 $ 419,800 379,900 799,700 $957,700

Answer 1

1.
a. Total Fixed Cost = $150000x4+(25000+64000+12000+8000+8000)x4 = $1068000

b. Total Variable cost per unit sold =3.5*3+0.25*18+0.25*3+1.25 = $17 per unit

c. Contribution margin per unit sold = Selling price - Variable cost per unit
= $32 - $17 = $15 per unit

d. Unit Sales to break even = Fixed Cost / Contribution margin per unit
= $1068000 / 15 = 71200 units in a year

Dollar Sales to break even = 71200 x $32 = $2278400

e. Margin of Safety = Actual Sales - Break even sales
= (12000+37000+15000+25000)*32 - 2278400 = $569600

f. Degree of Operating Leverage = Contribution Margin / Operating Income
= (12000+37000+15000+25000)*15 / (12000+37000+15000+25000)*15-1068000
= $1335000 / 267000 = 5

2.

Variable Costing Income Statement
Sales Revenue		$         28,48,000
Less Variable Costs
Direct Material	$   9,34,500		=89000*3.5*3
Direct labor	$   4,00,500		=89000*0.25*18
Manufacturing Overhead	$       66,750		=89000*0.25*3
Selling and administrative expenses	$   1,11,250		=89000*1.25
Total Variable Costs		$         15,13,000
Contribution Margin		$         13,35,000
Less Fixed Expenses
Manufacturing Overhead	$   6,00,000		=150000*4
Selling and administrative expenses	$   4,68,000		=(25000+64000+12000+8000+8000)*4
Total Fixed Expenses		$         10,68,000
Net Operating Income		$            2,67,000