Pacific Electronics manufactures and sells two types of lamps: floor lamps and desk lamps.Floor lamps sell for $30 and desk lamps sell for $20. The projected income statement for the coming year appears below.Sales$600,000Total variable costs(400,000)Contribution Margin$200,000Total Fixed cost(150,000) Operating Income$ 50,000 The management of Pacific estimates that 60% of the company’s sales revenue is generated by floor lamps and the remaining 40% by desk lamps. Floor lamps also accounts for 60% of the variable costs. Required:What is the Contribution Margin Ratio for Pacific Electronics? Explain the meaning of this ratio in words.How many units of floor lamps and how many units of desk lamps are currently sold? What is the sales mix ratio?iii. How much total sales the company must produce to Break-even?What is the package Contribution Margin for the sale mix?How many floor lamps and how many desk lamps Pacific must sell to break even?Compute the Degree of Operating Leverage for the company. Assume that actual revenue will be 40% higher than the current revenues. By what percentage will profits increase with this change in sales volume?

In This Numerical has covered the concept of Cost Volume Profit Analysis.

Answered: Pacific Electronics manufactures and…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Pacific Electronics manufactures and sells two types of lamps: floor lamps and desk lamps.

Floor lamps sell for $30 and desk lamps sell for $20. The projected income statement for the coming year appears below.

Sales	$600,000
Total variable costs	(400,000)
Contribution Margin	$200,000
Total Fixed cost	(150,000)
Operating Income	$ 50,000

The management of Pacific estimates that 60% of the company’s sales revenue is generated by floor lamps and the remaining 40% by desk lamps. Floor lamps also accounts for 60% of the variable costs.

Required:

What is the Contribution Margin Ratio for Pacific Electronics? Explain the meaning of this ratio in words.
How many units of floor lamps and how many units of desk lamps are currently sold? What is the sales mix ratio?

iii. How much total sales the company must produce to Break-even?

What is the package Contribution Margin for the sale mix?
How many floor lamps and how many desk lamps Pacific must sell to break even?
Compute the Degree of Operating Leverage for the company. Assume that actual revenue will be 40% higher than the current revenues. By what percentage will profits increase with this change in sales volume?

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