Break-Even in Sales Revenue, Variable-Costing Ratio, Contribution Margin Ratio, Margin of Safety Hammond Company runs a driving range and golf shop. The budgeted income statement for the coming year is as follows. Sales $1,240,000 Less: Variable expenses 706,800 Contribution margin $533,200 Less: Fixed expenses 425,000 Income before taxes $108,200 Less: Income taxes 43,280 Net income $64,920 Required: 1. What is Hammond’s variable cost ratio? Enter your answer as a decimal value rounded to two decimal places. What is the contribution margin ratio? Enter your answer as a decimal value rounded to two decimal places. (Express as a decimal-based amount rather than a whole percent.) 2. Suppose Hammond’s actual revenues are $200,000 greater than budgeted. By how much will before-tax profits increase? Calculate the answer without preparing a new income statement. $ 3. How much sales revenue must Hammond earn in order to break even? Round your answer to the nearest dollar. $ What is the expected margin of safety? Round your answer to the nearest dollar. $ 4. How much sales revenue must Hammond generate to earn a before-tax profit of $130,000? Round your answer to the nearest dollar. $ How many sales revenue must Hammond generate to earn an after-tax profit of $90,000? Round your answer to the nearest dollar. $ Prepare a contribution margin income statement to verify the accuracy of your last answer. Round your answers to the nearest dollar. Hammond Company Contribution Margin Income Statement
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Break-Even in Sales Revenue, Variable-Costing Ratio, Contribution Margin Ratio, Margin of Safety
Hammond Company runs a driving range and golf shop. The
| Sales | $1,240,000 |
| Less: Variable expenses | 706,800 |
| Contribution margin | $533,200 |
| Less: Fixed expenses | 425,000 |
| Income before taxes | $108,200 |
| Less: Income taxes | 43,280 |
| Net income | $64,920 |
Required:
1. What is Hammond’s variable cost ratio? Enter your answer as a decimal value rounded to two decimal places.
What is the contribution margin ratio? Enter your answer as a decimal value rounded to two decimal places. (Express as a decimal-based amount rather than a whole percent.)
2. Suppose Hammond’s actual revenues are $200,000 greater than budgeted. By how much will before-tax profits increase? Calculate the answer without preparing a new income statement.
$
3. How much sales revenue must Hammond earn in order to break even? Round your answer to the nearest dollar.
$
What is the expected margin of safety? Round your answer to the nearest dollar.
$
4. How much sales revenue must Hammond generate to earn a before-tax profit of $130,000? Round your answer to the nearest dollar.
$
How many sales revenue must Hammond generate to earn an after-tax profit of $90,000? Round your answer to the nearest dollar.
$
Prepare a contribution margin income statement to verify the accuracy of your last answer. Round your answers to the nearest dollar.
| Hammond Company |
| Contribution Margin Income Statement |
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