Question

Required: Use the information in the DATA field above using cell referencing to answer the following requirements.
1. Prepare a contribution income statement for the year ignoring income tax implication.
2. Calculate the breakeven point in units.
3. Calculate the breakeven point in sales dollars.
4. Calculate the margin of safety in sales dollars.
5. Calculate the company's operating leverage.
6. Calculate the percentage change in profits if sales are projected to increase by:	7%
7. What if the direct labor cost per unit increases from $8 a unit to $10, what will be the new breakeven in units? Explain why it changed.
You should only have to change the direct labor in the data area and all your answers should update. Please put the direct labor cost back to the original number once you have answered the question.
8. What if the manufacturing overhead cost decreases from $90,000 to $80,000, what will be the new breakeven in units? Explain why it changed.
You should only have to change the fixed MOH in the data area and all your answers should update. Please put the fixed MOH cost back to the original number once you have answered the question.
9. The sales manager believes the company could increase sales by 700 units if advertising expenditures were increased by $20,000.

Sales price per unit		$57
Manufacturing costs:				Fixed Costs	Variable Costs
		Direct materials			$10
		Direct labor			8
		Variable Manufacturing overhead			5
		Fixed Manufacturing overhead		$90,000
	Period expenses:
		Variable Selling and administrative expenses			2
		Fixed Selling and Administrative expenses		25,200
	Totals			$115,200	$25
Units sold		5,200	units

Answer 1

1)

Sales	296,400.00
Variable cost	130,000.00
Contribution Margin	166,400.00
Fixed Cost	115,200.00
Net income	51,200.00

2)Break even point in units = 115,200/(57 - 25)

=3,600 Units

3)Break even point in dollars = 115,200/0.561404

205,200

4)Margin of safety in dollars = 296,400 - 205,200 = 91,200

5) Companys Operating leverage = 166,400/51,200 = 3.25

6. Change in Profits = 3.25 x 7% = 22.75%

7.Break even point in units = 115,200/(57 - 27)

=3,840 Units

The Break even points in units has increased as contribution margin has gone down , so now company has to sell more units to recover the fixed cost

8.Break even point in units = 105,200/(57 - 25)

=3,287.50

It has gone down as the burden of fixed cost has reduced

9.

Sales	336,300.00
Variable cost	147,500.00
Contribution Margin	188,800.00
Fixed Cost	135,200.00
Net income	53,600.00