Speedy Mouse Inc. makes a special mouse for computers. Each mouse sells for $25 and annual production and sales are 120,000 units. Costs for each mouse are as follows: Direct material $ 6.00 Direct labor 3.00 Variable overhead 0.80 Variable selling expenses 2.20 Total variable cost $12.00 Total fixed overhead $589,550 a. Calculate the unit contribution margin in dollars and the contribution margin ratio for the product. b. Determine the break-even point in number of mice. c. Calculate the dollar break-even point using the contribution margin ratio.
Speedy Mouse Inc. makes a special mouse for computers. Each mouse sells for $25 and annual production and sales are 120,000 units. Costs for each mouse are as follows:
Direct material $ 6.00
Direct labor 3.00
Variable
Variable selling expenses 2.20
Total variable cost $12.00
Total fixed overhead $589,550
a. Calculate the unit contribution margin in dollars and the contribution margin ratio for the product.
b. Determine the break-even point in number of mice.
c. Calculate the dollar break-even point using the contribution margin ratio.
d. Determine Speedy Mouse Inc.’s margin of safety in units, in sales dollars, and as a percentage.
e. Compute Speedy Mouse Inc.’s degree of operating leverage. If sales increase by 25 percent, by what percentage would before-tax income increase?
f. How many mice must the company sell if it desires to earn $996,450 in before-tax profits?
g. If Speedy Mouse Inc. wants to earn $657,800 after tax and is subject to a 20 percent tax rate, how many units must be sold?
h. How many units would the company need to sell to break even if its fixed costs increased by $7,865? (Use original data.)
i. Speedy Mouse Inc. has received an offer to provide a one-time sale of 4,000 mice to a network of computer superstores. This sale would not affect other sales or their costs, but the variable cost of the additional units will increase by $0.60 for shipping and fixed costs will increase by $18,000. The selling price for each unit in this order would be $20. Based on quantitative measurement, should the company accept this offer? Show your calculations.
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