Question

Question 1 (50pts) Voltar Company manufactures and sells a specialized cordless telephone for high el ectromagnetic radiation environments. The company's contribution format income statement for the most recent year is given below: Sales (20,000 units @$60) Variable expenses (20,000 units @45) 900,000 Contribution margirn Fixed expenses Net income before tax $1,200,000 $300,000 $240,000 $60,000 Management is anxious to increase the company's profit (net income) and has asked for an analysis of a number of items. Required (In answering this treat each part INDEPENDENTLY) 1. Compute the company's contribution margin ratio 2. Compute the company's break even point in both units and sales dollars 3. Assume that next year, management wants to earn a profit after tax of $90,000. How many units wilt have to be sold to meet this target proft? (Assume tax rate is 30%) Assume that next year, management wants to earn a profit before tax of $90,000. How many units will have to be sold to meet this target profit? 5. Compute the company's operating leverage at the present level of sales. Assume that through a more intense sales effort by the sales staff, the company's sales increase by 8%. By what percent would you expect profit to increase? 6.

Answer 1

1		Amount	Per unit
	Sales	1200000	60
	Variable expense	900000	45
	Contribution margin	300000	15
	Contribution margin ratio	25%	(300000/1200000)
2	Breakeven in units = Fixed cost / contribution margin per unit
	Fixed cost	240000
	Contribution margin per unit	15
	Breakeven in units	16000	Units
	Break even in dollars = Fixed cost / contribution margin ratio
	Fixed cost	240000
	Contribution margin ratio	25%
	Breakeven in dollars	960000
3	Profit after tax	90000
	Income tax expense	38571.42857
	Profit before taxes	128571.4286
	Units = Fixed cost + Profit before taxes / contribution margin per unit
	Fixed cost	240000
	Profit before taxes	128571
	Total	368571
	Contribution margin per unit	15
	Units	24571	Units
4	Units = Fixed cost + Profit before taxes / contribution margin per unit
	Fixed cost	240000
	Profit before taxes	90000
	Total	330000
	Contribution margin per unit	15
	Units	22000	Units