. Eddie Barzoon Inc. produces a variety of products. One division makes extremely realisticHalloween costumes. The division's projected income statement for the coming year is as follows:Sales (65,000 units)$15,600,000Less: Variable expenses8.736,000Contribution margin$ 6,864,000Less: Fixed expenses4.012,000Operating income$ 2,852,000a. Compute the contribution margin per unit, and calculate the break-even point in units. Repeat, using thecontribution margin ratio.b. Eddie Barzoon has decided to increase the advertising budget by $140,000 and cut the average sellingprice to $200. These actions will increase sales revenues by $1 million. Will this improve the division'sfinancial situation? Prepare a new income statement to support your answer.c. Suppose sales revenues exceed the estimated amount on the income statement by $612,000. Withoutpreparing a new income statement, determine by how much profits are underestimated.d. Compute the margin of safety in dollars based on the given income statement.e. Compute the operating leverage based on the given income statement. (Round to three significant digits.) Ifsales revenues are 20 percent greater than expected, what is the percentage increase in profits?

Part a) Contribution per unit = contribution/units = $6864000/65000 = $105.60 Break even point =…

Answered: . Eddie Barzoon Inc. produces a variety…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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In the current year, Becker Sofa Company expected to sell 12,000 leather sofas. Fixed costs for the year were expected to be $8,400,000; unit sales price was budgeted at $4,600; and unit variable costs were expected to be $2,200.Becker Sofa Company's margin of safety (MOS) in sales dollars is:
Houpe Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price $ 140 100% Variable expenses 42 30% Contribution margin $ 98 70% Fixed expenses are $490,000 per month. The company is currently selling 6,000 units per month. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $11 per unit. In exchange, the sales staff would accept a decrease in their salaries of $58,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 100 units. What should be the overall effect on the company's monthly net operating income of this change?
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