FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Katayama Company produces a variety of products. One division makes neoprene wetsuits. The division’s
| Sales (65,000 units) | $15,600,000 |
| Less: Variable expenses | 8,736,000 |
| Contribution margin | $6,864,000 |
| Less: Fixed expenses | 4,012,000 |
| Operating income | $2,852,000 |
2. The divisional manager has decided to increase the advertising budget by $140,000 and cut the average selling price to $200. These actions will increase sales revenues by $1 million. Will this improve the division's financial situation?
3. Suppose sales revenues exceed the estimated amount on the income statement by $612,000. Without preparing a new income statement, determine by how much profits are underestimated.
$
4. How many units must be sold to earn an after-tax profit of $1.254 million? Assume a tax rate of 34 percent. Round your answer to the nearest whole unit.
units
5. Compute the margin of safety in dollars based on the given income statement. Round your answer to the nearest dollar.
$
6. Compute the operating leverage based on the given income statement. Round your answer to three decimal places. Use the rounded answer in the subsequent computation.
7. If sales revenues are 20 percent greater than expected, what is the percentage increase in profits? Round the percentage to two decimal places.
%
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