APPLY THE CONCEPTS: Target income (sales revenue)Another useful method for figuring out the type of performance your company will need to reach a target income is by using sales revenue. Rather than using the number of units, this method uses total sales revenue. In companies for which thetotal set of goods produced and sold is more varied, this would be the preferred method, as opposed to a business in which only one product is sold. Assume a company has pricing and cost information as follows:Price and Cost InformationAmountSelling Price per Unit$30Variable Cost per Unit$15Total Fixed Cost$15,000For the upcoming period, the company wishes to generate operating income of $40,000. Given the cost and pricing structure for the company's product, how much sales revenue must it generate to attain its target income?Step 1: Calculate the contribution margin ratio:The contribution margin ratio is the contribution margin in proportion to the selling price on a per-unit basis.(Selling Price - Variable Cost)Contribution Margin Ratio =Selling PriceNote: The contribution margin ratio is calculated to one decimal place.)30 v - $15)Contribution Margin Ratio =30 Step 2: Calculate the sales revenue required to attain the target income:(Target Income + Fixed Cost)Sales Dollars =Contribution Margin Ratio+ $15,000)Sales Dollars =Step 3: Create a contribution margin income statement, to check your previous work. Enter all amounts as positive numbers.SalesTotal variable expenseTotal contribution marginTotal fixed expenseOperating income

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(Target Income + Fixed Cost) Sales Dollars Contribution Margin Ratio + $15,000) Sales Dollars = Step 3: Create a contribution margin income statement, to check your prev Sales Total variable expense Total contribution margin Total fixed expense Operating income

(Target Income + Fixed Cost) Sales Dollars Contribution Margin Ratio + $15,000) Sales Dollars = Step 3: Create a contribution margin income statement, to check your prev Sales Total variable expense Total contribution margin Total fixed expense Operating income

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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[The following information applies to the questions displayed below.] The Chapter 5 Form worksheet appearing below recreates the Review Problem example in the text. Download the Applying Excel form and enter formulas in all cells that contain question marks. For example, in cell B13 enter the formula "= B5". After entering formulas in all of the cells that contained question marks, verify that the dollar amounts match the example in the text. Required: 1. Check your worksheet by changing the fixed expenses to $270,000. If your worksheet is operating properly, the degree of operating leverage should be 10. If you do not get this answer, find the errors in your worksheet and correct them.
The following income statement applies to Finch Company for the current year: Income Statement Sales revenue (480 units × $30) $ 14,400 Variable cost (480 units × $15) (7,200 ) Contribution margin 7,200 Fixed cost (4,000 ) Net income $ 3,200 Required a. Use the contribution margin approach to calculate the magnitude of operating leverage. b. Use the operating leverage measure computed in Requirement a to determine the amount of net income that Finch
The following information is available for Sunland Department Stores: Average operating assets Controllable margin Contribution margin Minimum rate of return What is Sunland's residual income? O $59200 O. $160800 O $10800 O $670000 $740000 70000 220000 8%
Which of the following equations is true? Multiple Choice Dollar sales for company to break even (Traceable fixed expenses Common fixed expenses) + Overall contribution margin (CM) ratio Dollar sales for company to break even - (Traceable fixed expenses-Common fixed expenses) Overall contribution margin (CM) ratio Dollar sales for company to break even (Traceable variable expenses Traceable fixed expenses) Overall contribution margin (CM) ratio Dollar sales for company to break even (Traceable variable expenses-Common fixed expenses) Overall contribution margin (CM) ratio.
The contribution margin income statementa. reports expenses based on cost behavior pattern rather than cost function.b. unitizes fixed costs.c. shows contribution margin rather than operating income as the bottom line.d. is sometimes used for financial reporting purposes.e. none of the above.Use the following information for Questions 9 and 10.O’Brien, Inc.’s, 2013 contribution margin income statement shows thefollowing:Sales @ $10 per unit . . . . . . . . . . . . . $ 160,000Less: Variable expense . . . . . . . . . . . (128,000)Contribution margin. . . . . . . . . . . . . . $ 32,000Less: Fixed expenses . . . . . . . . . . . . (44,000)Operating income (loss) . . . . . . . . . . . $ (12,000)
Compute breakeven sales. (Use the rounded contribution margin ratio calculated in the previous part to compute breakeven sales.) Breakeven sales eTextbook and Media Save for Later (b2) S What is Pharoah's margin of safety? Margin of safety $
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1. Call(35) = $9.12, Call(40) = $6.22, Call(45)= $4.08. Using MS Excel, create profit tables and graphs separately for each long call and then create a single chart showing profit for each long call on the same graph, clearly label each profit curve.
Engberg Company installs lawn sod in home yards. The company's most recent monthly.contribution format Income statement follows: Percent of Sales 100% Sales Variable expenses Contribution margin Fixed expenses Net operating income Amount $ 92,000 36,800 55,200. 44,160 $ 11,040 40% 60% Required: 1. What is the company's degree of operating leverage? 2. Using the degree of operating leverage, estimate the impact on net operating income of a 7% increase in unit sales. 3. Construct a new contribution format income statement for the company assuming a 7% increase in unit sales. Answer is not complete. Complete this question by entering your answers in the tabs below. increases Required 1 Required 2 Required 3 Using the degree of operating leverage, estimate the impact on net operating income of a 7% increase in unit sales. (Round your intermediate calculations to 2 decimal places. Round your percentage answer to 2 decimal places (.e.1234 should be entered as 12.34).) Net operating income.…
Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Compute the company's margin, turnover, and return on investment (ROI) for the period. Note: Round your intermediate calculations and final answer to 2 decimal places. Margin % Turnover ROI %
3-20 Once a company exceeds its breakeven level, operating income can be calculated by multiplying:a. The sales price by unit sales in excess of breakeven units.b. Unit sales by the difference between the sales price and fixed cost per unit.c. The contribution margin ratio by the difference between unit sales and breakeven sales.d. The contribution margin per unit by the difference between unit sales and breakeven sales.©2016 DeVry/Becker Educational Development Corp. All Rights Reserved.Exercises3-21 CVP computations. Fill in the blanks for each of the following independent cases.Case RevenuesVariableCosts Fixed Costs Total CostsOperatingIncomeContributionMargin Percentagea. $600 $ 800 $1,600b. $2,500 $200 $ 900c. $ 500 $300 $ 500d. $1,200 $200 25%3-22 CVP computations. Garrett Manufacturing sold 410,000 units of its product for $68 per unit in 2017.Variable cost per unit is $60, and total fixed costs are $1,640,000.1. Calculate (a) contribution margin and (b) operating income.2.…