omprehensive; multiproduct Nature’s Own makes three types of wood flooring: Oak, Hickory, and Cherry. The company’s tax rate is 40 percent. The following costs are expected for the year: Oak Hickory Cherry Variable cost (on a per-square-yard basis) Direct material $10.40 $6.50 $17.60 Direct labor 3.60 0.80 12.80 Production overhead 2.00 0.30 3.50 Selling expense 1.00 0.50 4.00 Administrative expense 0.40 0.20 0.60 Fixed overhead $912,000 Fixed selling expense 288,000 Fixed administrative expense 240,000 Per-square-yard expected selling prices are as follows: Oak, $32.80; Hickory, $16.00; and Cherry, $50.00. The expected sales mix is as follows: Oak Hickory Cherry Square yards 10,800 86,400 7,200 d. If the company wants to earn an after-tax profit of $816,000, determine the revenue needed using the contribution margin percentage approach. Note: Round CM% to the nearest tenth of a percent and your final answer to the nearest whole dollar. $ e. If the company achieves the revenue determined in (d), what is the (1) breakeven point in dollars, and the margin of safety (2) in dollars and (3) as a percentage? Note: In your breakeven point in dollars calculation, round CM% to the nearest tenth of a percent; round your final answer to the nearest whole dollar. Note: Round margin of safety in dollars to the nearest whole dollar. Note: Round the margin of safety percentage to the nearest tenth of a percent (for example, round 5.6666% to 5.7%.) Breakeven in dollars: $ Margin of safety in dollars: $ Margin of safety percentage: %

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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Comprehensive; multiproduct
Nature’s Own makes three types of wood flooring: Oak, Hickory, and Cherry. The company’s tax rate is 40 percent. The following costs are expected for the year:

		Oak	Hickory	Cherry
Variable cost (on a per-square-yard basis)
Direct material		$10.40	$6.50	$17.60
Direct labor		3.60	0.80	12.80
Production overhead		2.00	0.30	3.50
Selling expense		1.00	0.50	4.00
Administrative expense		0.40	0.20	0.60
Fixed overhead	$912,000
Fixed selling expense	288,000
Fixed administrative expense	240,000

Per-square-yard expected selling prices are as follows: Oak, $32.80; Hickory, $16.00; and Cherry, $50.00. The expected sales mix is as follows:

	Oak	Hickory	Cherry
Square yards	10,800	86,400	7,200

d. If the company wants to earn an after-tax profit of $816,000, determine the revenue needed using the contribution margin percentage approach.
Note: Round CM% to the nearest tenth of a percent and your final answer to the nearest whole dollar.
$

e. If the company achieves the revenue determined in (d), what is the (1) breakeven point in dollars, and the margin of safety (2) in dollars and (3) as a percentage?

Note: In your breakeven point in dollars calculation, round CM% to the nearest tenth of a percent; round your final answer to the nearest whole dollar.
Note: Round margin of safety in dollars to the nearest whole dollar.
Note: Round the margin of safety percentage to the nearest tenth of a percent (for example, round 5.6666% to 5.7%.)

Breakeven in dollars: $

Margin of safety in dollars: $

Margin of safety percentage: %

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$\begin{array}{rcl} B r e a k e v e n p o i n t i n d o l l a r s & = & \frac{F i x e d C o s t}{C o n t r i b u t i o n m a r g i n p e r c e n t a g e} \end{array}$

$\begin{array}{rcl} M a r g i n o f s a f e t y i n d o l l a r s & = & A c t u a l S a l e s - B r e a k e v e n p o i n t i n d o l l a r s \end{array}$

$\begin{array}{rcl} M a r g i n o f s a f e t y a s a p e r c e n t a g e & = & \frac{M a r g i n o f s a f e t y i n d o l l a r s}{A c t u a l S a l e s} \times 100 \end{array}$

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