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Required: 1. Compute the degree of operating leverage for each process. Round your answers to one decimal place. Use the rounded answers in subseque calculations. Process 1 Process 2 2. Suppose that sales are 20 percent higher than budgeted. By what percentage will operating income increase for each process?

Required: 1. Compute the degree of operating leverage for each process. Round your answers to one decimal place. Use the rounded answers in subseque calculations. Process 1 Process 2 2. Suppose that sales are 20 percent higher than budgeted. By what percentage will operating income increase for each process?

FINANCIAL ACCOUNTING
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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Ringsmith

Ringsmith Company is considering two different processes to make its product-process 1 and process 2. Process 1 requires Ringsmith to manufacture subcomponents of the product in-house. As a result, materials are less expensive, but fixed overhead is higher. Process 2 involves purchasing all subcomponents from outside suppliers. The direct materials costs are higher, but fixed factory overhead is considerably lower. Relevant data for a sales level of 32,000 units follow: Process 1 Process 2 Sales $8,256,000 $8,256,000 Variable expenses 2,816,000 4,736,000 Contribution margin $5,440,000 $3,520,000 Less total fixed expenses 3,584,240 1,487,020 Operating income $1,855,760 $2,032,980 Unit selling price $258 $258 Unit variable cost $88 $148 Unit contribution margin $170 $110 Required: 1. Compute the degree of operating leverage for each process. Round your answers to one decimal place. Use the rounded answers in subsequent calculations. Process 1 Process 2 2. Suppose that sales are 20 percent higher than budgeted. By what percentage will operating income increase for each process? Process 1
Transcribed Image Text:Ringsmith Company is considering two different processes to make its product-process 1 and process 2. Process 1 requires Ringsmith to manufacture subcomponents of the product in-house. As a result, materials are less expensive, but fixed overhead is higher. Process 2 involves purchasing all subcomponents from outside suppliers. The direct materials costs are higher, but fixed factory overhead is considerably lower. Relevant data for a sales level of 32,000 units follow: Process 1 Process 2 Sales $8,256,000 $8,256,000 Variable expenses 2,816,000 4,736,000 Contribution margin $5,440,000 $3,520,000 Less total fixed expenses 3,584,240 1,487,020 Operating income $1,855,760 $2,032,980 Unit selling price $258 $258 Unit variable cost $88 $148 Unit contribution margin $170 $110 Required: 1. Compute the degree of operating leverage for each process. Round your answers to one decimal place. Use the rounded answers in subsequent calculations. Process 1 Process 2 2. Suppose that sales are 20 percent higher than budgeted. By what percentage will operating income increase for each process? Process 1
Process 1 % Process 2 % What will be the increase in operating income for each system? Round your answers to the nearest dollar. Process 1 Process 2 What will be the total operating income for each process? Round your intermediate calculations and final answers to the nearest dollar. Use the rounded answers in subsequent calculations. Process 1 Process 2 3. What if unit sales are 10 percent lower than budgeted? By what percentage will operating income decrease for each process? Process 1 % Process 2 % What will be the total operating income for each process? Round your intermediate calculations and final answers to the nearest dollar. Use the rounded answers in subsequent calculations. Process 1 Process 2
Transcribed Image Text:Process 1 % Process 2 % What will be the increase in operating income for each system? Round your answers to the nearest dollar. Process 1 Process 2 What will be the total operating income for each process? Round your intermediate calculations and final answers to the nearest dollar. Use the rounded answers in subsequent calculations. Process 1 Process 2 3. What if unit sales are 10 percent lower than budgeted? By what percentage will operating income decrease for each process? Process 1 % Process 2 % What will be the total operating income for each process? Round your intermediate calculations and final answers to the nearest dollar. Use the rounded answers in subsequent calculations. Process 1 Process 2
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