Eddie Barzoon Inc. produces a variety of products. One division makes extremely realistic Halloween costumes. The division's projected income statement for the coming year is as follows: Sales (65,000 units) $15,600,000 Less: Variable expenses 8,736,000 Contribution margin $ 6,864,000 Less: Fixed expenses 4,012,000 Operating income $ 2,852,000 a. Compute the contribution margin per unit, and calculate the break-even point in units. Repeat, using the contribution margin ratio. b. Eddie Barzoon has decided to increase the advertising budget by $140,000 and cut the average selling price to $200. These actions will increase sales revenues by $1 million. Will this improve the division's financial 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. Without preparing 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.) If sales revenues are 20 percent greater than expected, what is the percentage increase in profits?

Eddie Barzoon Inc. produces a variety of products. One division makes extremely realistic Halloween costumes. The division's projected income statement for the coming year is as follows: Sales (65,000 units) $15,600,000 Less: Variable expenses 8,736,000 Contribution margin $ 6,864,000 Less: Fixed expenses 4,012,000 Operating income $ 2,852,000 a. Compute the contribution margin per unit, and calculate the break-even point in units. Repeat, using the contribution margin ratio. b. Eddie Barzoon has decided to increase the advertising budget by $140,000 and cut the average selling price to $200. These actions will increase sales revenues by $1 million. Will this improve the division's financial 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. Without preparing 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.) If sales revenues are 20 percent greater than expected, what is the percentage increase in profits?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 36P: Faldo Company produces a single product. The projected income statement for the coming year, based...

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Schylar Pharmaceuticals, Inc., plans to sell 130,000 units of antibiotic at an average price of 22 each in the coming year. Total variable costs equal 1,086,800. Total fixed costs equal 8,000,000. (Round all ratios to four significant digits, and round all dollar amounts to the nearest dollar.) Required: 1. What is the contribution margin per unit? What is the contribution margin ratio? 2. Calculate the sales revenue needed to break even. 3. Calculate the sales revenue needed to achieve a target profit of 245,000. 4. What if the average price per unit increased to 23.50? Recalculate: a. Contribution margin per unit b. Contribution margin ratio (rounded to four decimal places) c. Sales revenue needed to break even d. Sales revenue needed to achieve a target profit of 245,000
Klamath Company produces a single product. The projected income statement for the coming year is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. 2. Suppose 10,000 units are sold above break-even. What is the operating income? 3. Compute the contribution margin ratio. Use the contribution margin ratio to compute the break-even point in sales revenue. (Note: Round the contribution margin ratio to four decimal places, and round the sales revenue to the nearest dollar.) Suppose that revenues are 200,000 more than expected for the coming year. What would the total operating income be?
Katayama Company produces a variety of products. One division makes neoprene wetsuits. The divisions projected income statement for the coming year is as follows: Required: 1. Compute the contribution margin per unit, and calculate the break-even point in units. Repeat, using the contribution margin ratio. 2. The divisional manager has decided to increase the advertising budget by 140,000 and cut the average selling price to 200. These actions will increase sales revenues by 1 million. Will this improve the divisions financial situation? Prepare a new income statement to support your answer. 3. Suppose sales revenues exceed the estimated amount on the income statement by 612,000. Without preparing a new income statement, determine by how much profits are underestimated. 4. How many units must be sold to earn an after-tax profit of 1.254 million? Assume a tax rate of 34 percent. (Round your answer up to the next whole unit.) 5. Compute the margin of safety in dollars based on the given income statement. 6. Compute the operating leverage based on the given income statement. (Round to three significant digits.) If sales revenues are 20 percent greater than expected, what is the percentage increase in profits?
Sales Needed to Earn Target Income Chillmax Company plans to sell 3,500 pairs of shoes at 60 each in the coming year. Variable cost is 35% of the sales price; contribution margin is 65% of the sales price. Total fixed cost equals 78,000 (includes fixed factory overhead and fixed selling and administrative expense). Required: 1. Calculate the sales revenue that Chillmax must make to earn operating income of 81,900 by using the point in sales equation. 2. Check your answer by preparing a contribution margin income statement based on the sales dollars calculated in Requirement 1.
. Eddie Barzoon Inc. produces a variety of products. One division makes extremely realistic Halloween costumes. The division's projected income statement for the coming year is as follows: Sales (65,000 units) $15,600,000 Less: Variable expenses 8.736,000 Contribution margin $ 6,864,000 Less: Fixed expenses 4.012,000 Operating income $ 2,852,000 a. Compute the contribution margin per unit, and calculate the break-even point in units. Repeat, using the contribution margin ratio. b. Eddie Barzoon has decided to increase the advertising budget by $140,000 and cut the average selling price to $200. These actions will increase sales revenues by $1 million. Will this improve the division's financial 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. Without preparing a new income statement, determine by how much profits are underestimated. d. Compute the margin of safety in dollars based…
Katayama Company produces a variety of products. One division makes neoprene wetsuits. Thedivision’s projected income statement for the coming year is as follows:Sales (65,000 units) $15,600,000Less: Variable expenses 8,736,000Contribution margin $ 6,864,000Less: Fixed expenses 4,012,000Operating income $ 2,852,000 Required:1. Compute the contribution margin per unit, and calculate the break-even point in units.Repeat, using the contribution margin ratio.2. The divisional manager has decided to increase the advertising budget by $140,000 and cutthe average selling price to $200. These actions will increase sales revenues by $1 million. Will this improve the division’s financial situation? Prepare a new income statement to sup-port your answer. 3. Suppose sales revenues exceed the estimated amount on the income statement by$612,000. Without preparing a new income statement, determine by how much profits areunderestimated.4. How many…
Katayama Company produces a variety of products. One division makes neoprene wetsuits. The division's projected income statement for the coming year is as follows: Sales (65,000 units) $15,600,000 Less: Variable expenses 8,736,000 Contribution margin $6,864,000 Less: Fixed expenses 4,012,000 Operating income $2,852,000 Required: 1. Compute the contribution margin per unit, and calculate the break-even point in units. Round unit contribution margin to the nearest cent and break-even point to the nearest whole unit. Unit contribution margin $_______ Break-even point ______ 2. The divisional manager has decided to increase the advertising budget by $140,000 and cut the average selling price to $200. These actions will increase sales revenues by $1 million. Will this improve the division's financial situation? Yes OR No Prepare a new income statement to support your answer. In your calculations, round the variable cost ratio to three decimal places.…
Compute the contribution margin.
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Fence Industries is preparing its annual profit plan. As part of its analysis of the profitability of its customers, management estimates that the $15,000 for sales support should be assigned to the individual customers from the information given as follows: Multiple Choice Units purchased Purchase orders (annually) What is the amount of the sales support costs that should be allocated to Customer B, assuming Fence uses purchases orders to compute activity-based costs? $3,000 $6,000 $9,000 Customer A 200,000 $12,000 Customer B 300,000 32 8
Meargia Plastics is evaluating its plastic bottles division. The accounting manager has come up with the following data for the year: contribution margin of $570,000, controllable fixed of $228,000, and noncontrollable fixed costs of $57,000. Required: 1. What is the controllable margin? Controllable Margin 2. What is the total contribution by profit center (CPC)?
Calculate the number of helmets Head-First must sell to earn operating income of $81,900. _____________helmets Refer to the list below for the exact wording of text items within your income statement. Amount Descriptions Operating income Operating loss Sales Total contribution margin Total fixed cost Total variable cost Units to Earn Target Income Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,500 (includes fixed factory overhead and fixed selling and administrative expense). Required: 1. Calculate the number of helmets Head-First must sell to earn operating income of $81,900. 2. Check your answer by preparing a contribution margin income statement based on the number of units calculated