Question

SpeedCo. Manufacturing manufactures 16 GB flash drives​ (jump drives). Price and cost data for a relevant range extending to​ 200,000 units per month are as​ follows:

Sales price per unit:(current monthly sales volume is 110,000 units)	$25.00
Variable costs per unit:
Direct materials	$7.60
Direct labor. .	$6.00
Variable manufacturing overhead.	$4.40
Variable selling and administrative expenses	$3.00
Monthly fixed expenses:
Fixed manufacturing overhead.	$111,600
Fixed selling and administrative expenses	$167,400

1.	What is the​ company's contribution margin per​ unit? Contribution margin​ percentage? Total contribution​ margin?
2.	What would the​ company's monthly operating income be if the company sold 140,000 units?
3.	What would the​ company's monthly operating income be if the company had sales of $4,500,000​?
4.	What is the breakeven point in​ units? In sales​ dollars?
5.	How many units would the company have to sell to earn a target monthly profit of $260,100​?
6.	Management is currently in contract negotiations with the labor union. If the negotiations​ fail, direct labor costs will increase by 10​%,and fixed costs will increase by $22,500 per month. If these costs​ increase, how many units will the company have to sell each month to break​ even?
7.	Return to the original data for this question and the rest of the questions. What is the​ company's current operating leverage factor​ (round to two​ decimals)?
8.	If sales volume increases by 6​%,by what percentage will operating income​ increase?
9.	What is the​ company's current margin of safety in sales​ dollars? What is its margin of safety as a percentage of​ sales?
10.	Say the company adds a second line of flash drives​ (32 GB in addition to 16​ GB). A unit of the 32 GB flash drives will sell for $50 and have variable cost per unit of $20 per unit. The expected sales mix is two of the small flash drives​ (16 GB) for every one large flash drive​ (32 GB). Given this sales​ mix, how many of each type of flash drive will the company need to sell to reach its target monthly profit of $260,100​? Is this volume higher or lower than previously needed​ (in Question​ 5) to achieve the same target​ profit? Why?

Answer 1

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Total Note 2,750,000.00 Speed Co. Answer 1 Contribution margin income statement Particulars Per Unit Units 110,000.00 Sell Price 25.00 Less- Variable costs Direct Materials 7.60 Direct Labor 6.00 Variable manufacturing overhead 4.40 Variable selling and administrative expense 3.00 Total Variable costs 21.00 Contribution margin 4.00 Contribution margin % 836,000.00 660,000.00 484,000.00 330,000.00 2,310,000.00 440,000.00 16.00% DEB-C E=D/B Total 3,500,000.00 See B Answer 2 Particulars Per Unit Units 140,000.00 Sell Price 25.00 Less- Variable costs Direct Materials 7.60 Direct Labor 6.00 Variable manufacturing overhead 4.40 Variable selling and administrative expense 3.00 Total Variable costs 21.00 Contribution margin 4.00 Less- Fixed costs Fixed manufacturing overhead Fixed selling and administrative expenses Total Fixed costs Operating income 1,064,000.00 840,000.00 616,000.00 420,000.00 2,940,000.00 560,000.00 See C See D 111,600.00 167,400.00 279,000.00 281,000.00 H=D-G

Answer 3 Total Sales Contribution margin % Contribution margin Less-Total Fixed costs Operating income 4,500,000.00 16.00% 720,000.00 279,000.00 441,000.00 See E J=I*E See G K=J-G Answer 4 Total Fixed costs Contribution margin per unit Breakeven units Contribution margin % Breakeven volume ($) 279,000.00 4.00 69,750.00 16.00% 1,743,750.00 See G See D L= G/D See E MEG/E Answer 5 Total Fixed costs Target monthly profit Target contribution Contribution margin per unit Units to be sold 279,000.00 260,100.00 539,100.00 4.00 134,775.00 See G N ON G+N See D P=O/D

See B Answer 6 Particulars Per Unit Sell Price 25.00 Less- Variable costs Direct Materials 7.60 Direct Labor (increase by 10%) 6.60 Variable manufacturing overhead 4.40 Variable selling and administrative expense 3.00 Total Variable costs 21.60 Contribution margin 3.40 Total Fixed costs (increase by $ 22,500.) 301,500.00 Breakeven units 88,676.47 R=B-Q S= G+ 22,500 TES/R Total 2,750,000.00 Answer 7 Contribution margin income statement Particulars Per Unit Units 110,000.00 Sell Price 25.00 Less- Variable costs Direct Materials 7.60 Direct Labor 6.00 Variable manufacturing overhead 4.40 Variable selling and administrative expense 3.00 Total Variable costs 21.00 Contribution margin 4.00 Less: Total Fixed costs Operating income Operating leverage factor 836,000.00 660,000.00 484,000.00 330,000.00 2,310,000.00 440,000.00 279,000.00 161,000.00 2.73 See D VED/U

Total W= A*106% 2,915,000.00 Answer 8 Contribution margin income statement Particulars Per Unit Units (increase by 6%) 116,600.00 Sell Price 25.00 Less- Variable costs Direct Materials 7.60 Direct Labor 6.00 Variable manufacturing overhead 4.40 Variable selling and administrative expense 3.00 Total Variable costs 21.00 Contribution margin 4.00 Less: Total Fixed costs Operating income 886,160.00 699,600.00 513,040.00 349,800.00 2,448,600.00 466,400.00 279,000.00 187,400.00 See D See G X=D-G Increase in Operating income by % Increase in Operating income by 26,400.00 16.40% Y=X-U Z=Y/U Answer 9 Total Fixed costs Contribution margin per unit Breakeven units Contribution margin % Breakeven volume ($) Total Sales Margin of safety in sales (dollars) Margin of safety % 279,000.00 4.00 69,750.00 16.00% 1,743,750.00 2,750,000.00 1,006,250.00 36.59% See G See D AA= G/D See D AB= G/D See B AC=B-AB AD= AC/B

32 GB Total Answer 10 16 GB Sell Price Total Variable costs Contribution margin per unit Sales Mix Contribution margin per unit Weighted average Contribution margin per unit 25.00 21.00 4.00 2.00 8.00 50.00 20.00 30.00 1.00 30.00 38.00 12.67 Total Fixed costs 279,000.00 Target monthly profit 260,100.00 Target contribution 539,100.00 Weighted average Contribution margin per unit 12.67 Units to be sold 42,560.53 Units to be sold 28,373.68 14,186.84 Units to be sold in Question 5 134,775.00 Units sold is less than before because 32 GB pen drive gives more contribution margin per unit.