Flora’s Flats produces comfortable and portable women’s shoes designed to be worn as a second pair of shoes after a formal event.  The company has the following financial information:    The company’s sales price is $20 per unit.  The variable costs of producing flats is $6 per unit.  The company expects to have fixed costs of $10,000 next year.  The company expects to sell 1,000 pairs of flats next year.  Assume no taxes a. Prepare a budgeted contribution format income statement. b. Compute the margin of safety in both dollar and percentage terms. c. Compute the degree of operating leverage. d. If sales increase by 20% in the following year, how much would net income increase (use the degree of operating leverage to compute your answer).

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Flora’s Flats produces comfortable and portable women’s shoes designed to be worn as a second pair of shoes after a formal event.  The company has the following financial information: 

 

The company’s sales price is $20 per unit.  The variable costs of producing flats is $6 per unit.  The company expects to have fixed costs of $10,000 next year.  The company expects to sell 1,000 pairs of flats next year.  Assume no taxes


a. Prepare a budgeted contribution format income statement.

b. Compute the margin of safety in both dollar and percentage terms.

c. Compute the degree of operating leverage.

d. If sales increase by 20% in the following year, how much would net income increase (use the degree of operating leverage to compute your answer). 



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