Question

Break-Even Units, Contribution Margin Ratio, Multiple-Product Breakeven, Margin of Safety, Degree of Operating Leverage

Jellico Inc.'s projected operating income (based on sales of 450,000 units) for the coming year is as follows:

	Total
Sales	$ 12,150,000
Total variable cost	7,533,000
Contribution margin	$ 4,617,000
Total fixed cost	2,437,776
Operating income	$ 2,179,224

Required:

1(a). Compute variable cost per unit. Enter your answer to the nearest cent.
$per unit

1(b). Compute contribution margin per unit. Enter your answer to the nearest cent.
$per unit

1(c). Compute contribution margin ratio.
%

1(d). Compute break-even point in units.
units

1(e). Compute break-even point in sales dollars.
$

2. How many units must be sold to earn operating income of $311,904?
units

3. Compute the additional operating income that Jellico would earn if sales were $50,000 more than expected.
$

4. For the projected level of sales, compute the margin of safety in units, and then in sales dollars.

Margin of safety in units		units
Margin of safety in sales dollars	$

5. Compute the degree of operating leverage. Round your answer to one decimal place.

6. Compute the new operating income if sales are 10% higher than expected. Enter your answer to the nearest whole dollar.
$

Answer 1

1.a: Calculation of Variable Cost Per Unit: Total Variable Cost $ Total Units 450000 7,533,000.00 Variable Cost Per Unit ($7,533,000/450000) = $ 16.74 4,617,000.00 1. b. Calculation of Contribution Margin Per Unit: Total Contribution Margin $ Total Units 450000 Contribution Margin Per Unit ($4,617,000/450000) = $ 10.26 1. c. Calculation of Contribution Margin Ratio: Contribution Margin Ratio = Total Contribution Margin / Total Sales = $4,617,000/$12,150,000 = 0.38 1. d. Calculation of Break even point in Units : Break Even Point in Units = Total Fixed Costs / Contribution Margin Per Unit = $2,437,776/$10.26 237600 Units