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:
Endless Mountain Company | ||||||
Balance Sheet | ||||||
December 31, 2016 | ||||||
Assets | ||||||
Current assets: | ||||||
Cash | $ | 46,200 | ||||
Accounts receivable (net) | 260,000 | |||||
Raw materials inventory (4,500 yards) | 11,250 | |||||
Finished goods inventory (1,500 units) | 32,250 | |||||
Total current assets | $ | 349,700 | ||||
Plant and equipment: | ||||||
Buildings and equipment | 900,000 | |||||
Accumulated depreciation | (292,000 | ) | ||||
Plant and equipment, net | 608,000 | |||||
Total assets | $ | 957,700 | ||||
Liabilities and Stockholders’ Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 158,000 | ||||
Stockholders’ equity: | ||||||
Common stock | $ | 419,800 | ||||
Retained earnings | 379,900 | |||||
Total stockholders’ equity | 799,700 | |||||
Total liabilities and stockholders’ equity | $ | 957,700 | ||||
The company’s chief financial officer (CFO), in consultation with various managers across the organization has developed the following set of assumptions to help create the 2017 budget:
Required:
1. Calculate the following budgeted figures for 2017:
a. The total fixed cost.
b. The variable cost per unit sold.
c. The contribution margin per unit sold.
d. The break-even point in unit sales and dollar sales.
e. The margin of safety.
f. The degree of operating leverage
2. Prepare a budgeted variable costing income statement for 2017. Stop your computations at net operating income.
a. Total Fixed Costs per year = $150000*4+(25000+64000+12000+8000+8000)*4 = $1068000
b. Total Variable Cost per unit = $3*3.5+18*0.25+3*0.25+1.25 = $17
c. Contribution margin per unit = Selling Price - Variable Cost
per unit
= $32 - $17 = $15 per unit
d. Unit sales to breakeven = Fixed Costs / Contribution Margin
per unit
= $1068000 / $15 = 71200 units
Dollar sales to breakeven = 71200 x $32 = $2278400
e.
Margin of Safety = (Current Sales - Break even Sales) / Current
Sales x 100
= ($2848000-2278400) / 2848000 = 20%
in Dollars = $2848000 - 2278400 = $569600
f.
Contribution margin | $ 1,335,000 |
Fixed Costs | $ 1,068,000 |
Net Operating Income | $ 267,000 |
Degree of Operating Leverage = Contribution Margin / Net
Operating Income
= $1335000 / 267000 = 5 times
Units to be sold =12000+37000+15000+25000 = 89000
Variable Costing Income Statement | |||
Sales Revenue | $ 2,848,000 | =89000*32 | |
Variable Expenses : | |||
Direct material | $ 934,500 | =89000*3.5*3 | |
Direct labor | $ 400,500 | =89000*0.25*18 | |
Manufacturing Overhead | $ 66,750 | =89000*0.25*3 | |
Selling and administrative expense | $ 111,250 | =89000*1.25 | |
Total variable Expenses | $ 1,513,000 | ||
Contribution Margin | $ 1,335,000 | ||
Fixed Expenses | |||
Manufacturing Overhead | $ 600,000 | ||
Selling and administrative expense | $ 468,000 | =25000+64000+12000+8000+8000 | |
Total Fixed Expenses | $ 1,068,000 | ||
Net Operating Income | $ 267,000 |
Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company...
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: Endless Mountain Company Balance Sheet December 31, 2016 Assets Current assets: Cash $ 46,200 Accounts receivable (net) 260,000 Raw materials inventory (4,500 yards) 11,250 Finished goods inventory (1,500...
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 2022 and reports a balance sheet at December 31, 2021 as follows: Endless Mountain Company Balance Sheet December 31, 2021 Assets Current assets: Cash $ 46,200 Accounts receivable (net) 260,000 Raw materials inventory (4,500 yards) 11,250 Finished goods inventory (1,500...
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: Endless Mountain Company Balance Sheet December 31, 2016 Assets Current assets: Cash $ 46,200 Accounts receivable (net)...
Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company sells its product to retailers throughout Northern England. It is in the process of creating a master budget for 2017 and reports a balance sheet at December 31, 2016 as follows:Endless Mountain Company Balance SheetDecember 31, 2016AssetsCurrent assets:Cash$ 46,200Accounts receivable (net)260,000Raw materials inventory (4,500 yards)11,250Finished goods inventory (1,500 units) 32,250 Total current assets$ 349,700Plant and equipment:Buildings and equipment900,000Accumulated depreciation (292,000) Plant and equipment, net 608,000 Total...
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:...
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 2022 and reports a balance sheet at December 31, 2021 as follows:Endless Mountain CompanyBalance SheetDecember 31, 2021AssetsCurrent assets:Cash$46,200Accounts receivable (net)260,000Raw materials inventory (4,500 yards)11,250Finished goods inventory (1,500 units)32,250Total current assets$349,700Plant and equipment:Buildings and equipment900,000Accumulated depreciation(292,000)Plant and equipment, net608,000Total assets$957,700Liabilities and...
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