Emerald, Inc, produces a single product. The results of the company's operations for a typical month are summarized in contribution format as follows: Sales...................................$540,000 Variable expenses.............. 360,000 Contribution margin..........180,000 Fixed expenses................... 120,000 Net operating income........$ 60,000The company produced and sold 120,000 kilograms of product during the month. There was no beginning or ending inventories.Required:An important part of processing is performed by a machine that is currently being leased for $20,000 per month. The company has been offered an arrangement whereby it would pay $0.10 royalty per kilogram processed by the machine rather than the monthly lease.Should the company choose the lease or the royalty plan?Under the royalty plan compute break-even point in kilograms.Under the royalty plan compute break-even point in dollars.Under the royalty plan determine the sales in kilograms that would be required to produce net operating income of $90,000.

Cost of Monthly lease payments is $20,000 per month Cost of royalty plan is as follows: Resultant…

Answered: Emerald, Inc, produces a single…

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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Emerald, Inc, produces a single product. The results of the company's operations for a typical month are summarized in contribution format as follows:

	Sales...................................	$540,000
	Variable expenses..............	360,000
	Contribution margin..........	180,000
	Fixed expenses...................	120,000
	Net operating income........	$ 60,000

The company produced and sold 120,000 kilograms of product during the month. There was no beginning or ending inventories.

Required:

An important part of processing is performed by a machine that is currently being leased for $20,000 per month. The company has been offered an arrangement whereby it would pay $0.10 royalty per kilogram processed by the machine rather than the monthly lease.

Should the company choose the lease or the royalty plan?
Under the royalty plan compute break-even point in kilograms.
Under the royalty plan compute break-even point in dollars.
Under the royalty plan determine the sales in kilograms that would be required to produce net operating income of $90,000.

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