Multiple Products, Break-Even Analysis, Operating LeverageCarlyle Lighting Products produces two different types of lamps: a floor lamp and a desk lamp. Floor lamps sell for $30, and desk lamps sell for $20. The projected income statement for the coming year follows:Sales$600,000Total variable cost400,000Contribution margin$200,000Total fixed cost150,000Operating income$50,000The owner of Carlyle estimates that 60% of the sales revenues will be produced by floor lamps and the remaining 40% by desk lamps. Floor lamps are also responsible for 60% of the variable cost. Of the fixed cost, one-third is common to both products, and one-half is directly traceable to the floor lamp product line. 1. Compute the sales revenue that must be earned for Carlyle to break even. Round the contribution margin ratio to six decimals and sales revenue to the nearest dollar.$2. Compute the number of floor lamps and desk lamps that must be sold for Carlyle to break even. Round variable rates and contribution margins to four decimal places in yourcalculations. Round the final answers to the nearest whole dollar.Floor lampsunitsDesk lampsunits3. Compute the degree of operating leverage for Carlyle.Now assume that the actual revenues will be 40% higher than the projected revenues. By what percentage will profits increase with this change in sales volume?%

Answered: 1. Compute the sales revenue that must…

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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Multiple Products, Break-Even Analysis, Operating Leverage

Carlyle Lighting Products produces two different types of lamps: a floor lamp and a desk lamp. Floor lamps sell for $30, and desk lamps sell for $20. The projected income statement for the coming year follows:

Sales	$600,000
Total variable cost	400,000
Contribution margin	$200,000
Total fixed cost	150,000
Operating income	$50,000

The owner of Carlyle estimates that 60% of the sales revenues will be produced by floor lamps and the remaining 40% by desk lamps. Floor lamps are also responsible for 60% of the variable cost. Of the fixed cost, one-third is common to both products, and one-half is directly traceable to the floor lamp product line.

1. Compute the sales revenue that must be earned for Carlyle to break even. Round the contribution margin ratio to six decimals and sales revenue to the nearest dollar.
$
2. Compute the number of floor lamps and desk lamps that must be sold for Carlyle to break even. Round variable rates and contribution margins to four decimal places in your
calculations. Round the final answers to the nearest whole dollar.
Floor lamps
units
Desk lamps
units
3. Compute the degree of operating leverage for Carlyle.
Now assume that the actual revenues will be 40% higher than the projected revenues. By what percentage will profits increase with this change in sales volume?
%

Expert Solution

Step 1 Formulas used:

Break even = fixed cost / contribution margin

PV Ratio = Contribution / Sales * 100

Operating Leverage = Contribution / Operating Income

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