Question

Accounting 202 Managerial Accounting (1 )If the variable cost as a percentage of sales for lemon Inc. are 80%, current sales are $600,000 and fixed costs are $130,000, calculate the change in operating income lemon inc's increase by $40, 000. (2) Now assume that lemon's tax rate is 30%, the variable costs as a percentage of sales is 80% and fixed costs are only $55,000. Determine the amount of sales dollars required for lemon to achieve a net income of $ 1,400,000. (3) Based on question 2, what amount of sales dollars will result in a break-even?

(B) Consider that the unit selling price is now $60 while the variable costs and fixed costs are $35 and $12 respectively. If the current sales of lemon inc are 10,000 units, determine the change in operating income or loss under the following independent conditions (1) sales increase by 8,000 units (2) fixed costs increase by 15% (3) Variable costs decrease by 20%, as sales increase by 5%.

Answer 1

1.

	Current	Proposed
Sales	$ 600,000	$ 640,000
Less: Variable cost	$ 480,000	$ 512,000
Contribution	$ 120,000	$ 128,000
Less: Fixed cost	$ 130,000	$ 130,000
Operating Income	$ -10,000	$ -2,000
Operating income increased by $8,000

2.

Sales	$ 10,275,000
Less: Variable cost	$   8,220,000
Contribution	$   2,055,000
Less: Fixed cost	$         55,000
Operating Income	$   2,000,000
Tax	$      600,000
Net Income	$   1,400,000

3. Break-even Sales = $55,000/20% = $275,000

B.

			Q.1	Q.2	Q.3
	Per unit	10000 Units	18000 Units	10000 Units	10500 units
Sales	60	$   600,000	$       1,080,000	$       600,000	$ 504,000
Less: Variable cost	35	$   350,000	$          630,000	$       350,000	$ 367,500
Contribution	25	$   250,000	$          450,000	$       250,000	$ 136,500
Less: Fixed cost	12	$   120,000	$          120,000	$       138,000	$ 120,000
Operating Income	13	$   130,000	$          330,000	$       112,000	$   16,500