Question

[The following information applies to the questions displayed below.) Listed here are the total costs associated with the production of 1,000 drum sets manufactured by TrueBeat. The drum sets sell for $516 each. Costs 1. Plastic for casing-$19,000 2. Wages of assembly workers--$90,000 3. Property taxes on factory-$7,000 4. Accounting staff salaries-$33,000 5. Drum stands (1.000 stands purchased)-$35,000 6. Rent cost of equipment for sales staff-$36.000 7. Upper management salaries-$170,000 8. Annual flat fee for factory maintenance service--$16,000 9. Sales commissions-$25 per unit 10. Machinery depreciation, straight-line-$42,000

Answer 1

Answer:

Sales Revenue = 6,000 units * $516

= $ 3,096,000

Net Operating Income:

		$
Sales Revenue (516*6,000)		3,096,000
Less: Variable Costs:
Plastic for casting (19,000/1,000)*6,000	114,000
Wages for assembly workers (90,000/1,000)*6,000	540,000
Drum Stand (35,000/1,000)*6,000	210,000
Sales Commision (6,000*25)	150,000	(1,014,000)
Contribution Margin		2,082,000
Less: Fixed Cost
Property taxes on factory	7,000
Annual flat fee for factory maintenance service	16,000
Machinery Depreciation	42,000
Accounting staff salary	33,000
Rent cost of equipment for sales staff	36,000
Upper management salaries	170,000	(304,000)
NET OPERATING INCOME		1,778,000

Contribution Margin = Sales revenue - Variable costs

= $ 2,082,000

Contribution Margin Percent = Contribution margin / Sales

= $2,082,000 / $3,096,000

= 67.25%

Break-even in units = Fixed Cost / Contribution per unit

= 304,000 / (2082000/6000)

= $304,000 / 347

= 876 units

Break-even in dollars = Fixed cost / Contribution margin %

= 304,000 / 67.25%

= $452,045

Margin of Safety units = Actual sales units - Break-even units

= 6,000 - 876

= 5,124 units

Margin of safety % = (Total sales - Sales at Break even) / Total sales

= (3,096,000 - 452,045) / 3,096,000

= 85.40%

Margin of safety dollars = Total sales - Break even sales

= $ 3,096,000 - 452,045

= $ 2,643,955

Degree of Operating Leverage = Contribution margin / Operating income

= $2,082,000 / 1,778,000

= 1.17