-5] 9-39 CVP Analysis; Profit Planning Horton Manufacturing Inc. (HMI) is suffering from the effects of increased local and global competition for its main product, a lawn mower that is sold in discount stores throughout the United States. The following table shows the results of HMI's operations for 2019: Sales (12,500 units @ $84) Variable costs (12,500 @ $63) Contribution margin $1,050,000 787,500 $ 262,500 Fixed costs 296,100 Operating profit (loss) ($ 33,600) Required 1. Compute HMI's breakeven point in both units and dollars. Also, compute the contribution margin ratio. (Round the number of units up to the next whole number.) 2. What would be the required sales, in units and in dollars, to generate a pretax profit of $30,000? (Round the number of units up to the next whole number) 3. Assume an income tax rate of 40%. What would be the required sales volume, in both units and dollars, to generate an after-tax profit of $30,000? (Round the number of units up to the next whole number.) 4. Prepare a contribution income statement as a check for your calculations in requirement 3. 5. The manager believes that a $60,000 increase in advertising would result in approximately a $200,000 increase in annual sales. If the manager is right, what will be the effect on the company's operating profit or loss? 6. Refer to the original data. The vice president in charge of sales feels that a 10% reduction in price in combination with a $40,000 increase in advertising will cause unit sales to increases by 25%. What effect would this strategy have on operating profit (loss)? 7. Refer to the original data. During the year, HMI saved $5 of unit variable cost per lawn mower by buy- ing from a different manufacturer. However, changing the plant machinery to accommodate the new part means an additional $50,000 in fixed costs per year. Was this a wise change? Why or why not?
-5] 9-39 CVP Analysis; Profit Planning Horton Manufacturing Inc. (HMI) is suffering from the effects of increased local and global competition for its main product, a lawn mower that is sold in discount stores throughout the United States. The following table shows the results of HMI's operations for 2019: Sales (12,500 units @ $84) Variable costs (12,500 @ $63) Contribution margin $1,050,000 787,500 $ 262,500 Fixed costs 296,100 Operating profit (loss) ($ 33,600) Required 1. Compute HMI's breakeven point in both units and dollars. Also, compute the contribution margin ratio. (Round the number of units up to the next whole number.) 2. What would be the required sales, in units and in dollars, to generate a pretax profit of $30,000? (Round the number of units up to the next whole number) 3. Assume an income tax rate of 40%. What would be the required sales volume, in both units and dollars, to generate an after-tax profit of $30,000? (Round the number of units up to the next whole number.) 4. Prepare a contribution income statement as a check for your calculations in requirement 3. 5. The manager believes that a $60,000 increase in advertising would result in approximately a $200,000 increase in annual sales. If the manager is right, what will be the effect on the company's operating profit or loss? 6. Refer to the original data. The vice president in charge of sales feels that a 10% reduction in price in combination with a $40,000 increase in advertising will cause unit sales to increases by 25%. What effect would this strategy have on operating profit (loss)? 7. Refer to the original data. During the year, HMI saved $5 of unit variable cost per lawn mower by buy- ing from a different manufacturer. However, changing the plant machinery to accommodate the new part means an additional $50,000 in fixed costs per year. Was this a wise change? Why or why not?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![9-39 CVP Analysis; Profit Planning Horton Manufacturing Inc. (HMI) is suffering from the effects
of increased local and global competition for its main product, a lawn mower that is sold in discount
stores throughout the United States. The following table shows the results of HMI's operations for
2019:
[LO 9-3, 9-5]
$ 1,050,000
Sales (12,500 units @ $84)
Variable costs (12,500 @ $63)
Contribution margin
787,500
$ 262,500
Fixed costs
296,100
Operating profit (loss)
($ 33,600)
Required
1. Compute HMI's breakeven point in both units and dollars. Also, compute the contribution margin ratio.
(Round the number of units up to the next whole number.)
2. What would be the required sales, in units and in dollars, to generate a pretax profit of $30,000? (Round
the number of units up to the next whole number)
3. Assume an income tax rate of 40%. What would be the required sales volume, in both units and dollars,
to generate an after-tax profit of $30,000? (Round the number of units up to the next whole number.)
4. Prepare a contribution income statement as a check for your calculations in requirement 3.
5. The manager believes that a $60,000 increase in advertising would result in approximately a $200,000
increase in annual sales. If the manager is right, what will be the effect on the company's operating
profit or loss?
6. Refer to the original data. The vice president in charge of sales feels that a 10% reduction in price in
combination with a $40,000 increase in advertising will cause unit sales to increases by 25%. What
effect would this strategy have on operating profit (loss)?
7. Refer to the original data. During the year, HMI saved S5 of unit variable cost per lawn mower by buy-
ing from a different manufacturer. However, changing the plant machinery to accommodate the new
part means an additional $50,000 in fixed costs per year. Was this a wise change? Why or why not?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb710c207-272c-4903-bf55-9cf18aa2f186%2F50814ffa-d6c1-4e29-9d3b-841a47d1bb6b%2Fzu8d0iq_processed.jpeg&w=3840&q=75)
Transcribed Image Text:9-39 CVP Analysis; Profit Planning Horton Manufacturing Inc. (HMI) is suffering from the effects
of increased local and global competition for its main product, a lawn mower that is sold in discount
stores throughout the United States. The following table shows the results of HMI's operations for
2019:
[LO 9-3, 9-5]
$ 1,050,000
Sales (12,500 units @ $84)
Variable costs (12,500 @ $63)
Contribution margin
787,500
$ 262,500
Fixed costs
296,100
Operating profit (loss)
($ 33,600)
Required
1. Compute HMI's breakeven point in both units and dollars. Also, compute the contribution margin ratio.
(Round the number of units up to the next whole number.)
2. What would be the required sales, in units and in dollars, to generate a pretax profit of $30,000? (Round
the number of units up to the next whole number)
3. Assume an income tax rate of 40%. What would be the required sales volume, in both units and dollars,
to generate an after-tax profit of $30,000? (Round the number of units up to the next whole number.)
4. Prepare a contribution income statement as a check for your calculations in requirement 3.
5. The manager believes that a $60,000 increase in advertising would result in approximately a $200,000
increase in annual sales. If the manager is right, what will be the effect on the company's operating
profit or loss?
6. Refer to the original data. The vice president in charge of sales feels that a 10% reduction in price in
combination with a $40,000 increase in advertising will cause unit sales to increases by 25%. What
effect would this strategy have on operating profit (loss)?
7. Refer to the original data. During the year, HMI saved S5 of unit variable cost per lawn mower by buy-
ing from a different manufacturer. However, changing the plant machinery to accommodate the new
part means an additional $50,000 in fixed costs per year. Was this a wise change? Why or why not?
Expert Solution
Step 1 Introduction
Break-even point: A breakeven analysis is a calculation of the point at which revenue equals expenses. This analysis help business owner to determine when they will begin to turn a profit and helps them their products with that in mind.
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