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. Katayama CompanyIncome Statement $Sales $_______ Less: Variable expenses Contribution margin $______ Less: Fixed expenses _______ Operating income $______ 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 to the nearest whole unit. ________ units 5. Compute the margin of safety in dollars based on the given income statement. Round your answer to the nearest dollar. $_______ 6. Compute the operating leverage based on the given income statement. Round your answer to three decimal places. Use the rounded answer in the subsequent computation.__________ If sales revenues are 20 percent greater than expected, what is the percentage increase in profits? Round the percentage to two decimal places. _________%
Katayama Company produces a variety of products. One division makes neoprene wetsuits. The division's
| 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.
Katayama CompanyIncome Statement
| $Sales | $_______ |
| Less: Variable expenses | |
| Contribution margin | $______ |
| Less: Fixed expenses | _______ |
| Operating income | $______ |
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 to the nearest whole unit. ________ units
5. Compute the margin of safety in dollars based on the given income statement. Round your answer to the nearest dollar. $_______
6. Compute the operating leverage based on the given income statement. Round your answer to three decimal places. Use the rounded answer in the subsequent computation.__________
If sales revenues are 20 percent greater than expected, what is the percentage increase in profits? Round the percentage to two decimal places.
_________%
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