d. Assuming sales of 5,000 units, calculate Buggs-Off break-even point and margin of safety in units and sales dollars.e) Recompute the break-even point in units, assuming that variable costs increased by 20% and fixed costs are reduced by $50,625. How will this impact the margin of safety ratio?f) The President of Buggs-Off is under pressure from shareholders to increase operating income by 20% in 2021. Management expects per unit data and total fixed costs to remain the same in 2021. Using the equation method, compute the number of units that would have to be sold in 2021 to reach the shareholders desired profit level. Is this a realistic goal? Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round.The product sells at $100 per box. The following cost data has been prepared for its estimated upper and lowerlimits of activity for the year ended December 31, 2020.Lower Limit Upper Limit4,000Production (# of boxes)Production Costs:Direct MaterialsDirect Labour6,000$60,000$90,000120,00080,000Overhead:Indirect Materials.25,00037,500Indirect LabourDepreciation40,00050,00020,00020,000Selling & Administrative Expenses:65,00030,000Sales Salaries50,000Office Salaries30,000Advertising45,00045,000Other15,00020.000Total$365.000$477,500

The break-even point is the level of sales where the fixed cost is completely recovered and yields…

Answered: Buggs-Off Corporation produces and…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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d. Assuming sales of 5,000 units, calculate Buggs-Off break-even point and margin of safety in units and sales dollars.

e) Recompute the break-even point in units, assuming that variable costs increased by 20% and fixed costs are reduced by $50,625. How will this impact the margin of safety ratio?

f) The President of Buggs-Off is under pressure from shareholders to increase operating income by 20% in 2021. Management expects per unit data and total fixed costs to remain the same in 2021. Using the equation method, compute the number of units that would have to be sold in 2021 to reach the shareholders desired profit level. Is this a realistic goal?

Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round.
The product sells at $100 per box. The following cost data has been prepared for its estimated upper and lower
limits of activity for the year ended December 31, 2020.
Lower Limit Upper Limit
4,000
Production (# of boxes)
Production Costs:
Direct Materials
Direct Labour
6,000
$60,000
$90,000
120,000
80,000
Overhead:
Indirect Materials.
25,000
37,500
Indirect Labour
Depreciation
40,000
50,000
20,000
20,000
Selling & Administrative Expenses:
65,000
30,000
Sales Salaries
50,000
Office Salaries
30,000
Advertising
45,000
45,000
Other
15,000
20.000
Total
$365.000
$477,500

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