Last year, the company sold 33,500 balls, with the following results:Sales (33,500 balls)Variable expensesContribution margin.Fixed expensesNet operating income$ 837,500502,500335,000229,600$ 105,400Required:1. Compute (a) last year's CM ratio and the break-even point in balls and (b) the degree of operating leverage at last year's sales level.2. Due to an increase in labor rates, the company estimates next year's variable expenses will increase by $3 per ball. If this changetakes place and the selling price per ball remains constant at $25, what will be next year's CM ratio and the break-even point inballs?3. Refer to the data in requirement 2. If the expected change in variable expenses takes place, how many balls will have to be soldnext year to earn the same net operating income, $105,400, as last year?4. Refer again to the data in requirement 2. The president feels that the company must raise the selling price of its basketballs. IfNorthwood Company wants to maintain the same CM ratio as last year (as computed in requirement la), what selling price per ballmust it charge next year to cover the increased labor costs?5. Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plantwould slash variable expenses per ball by 40.00 %, but it would cause fixed expenses per year to double. If the new plant is built,what would be the company's new CM ratio and new break-even point in balls?6. Refer to the data in requirement 5.a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $105,400, as lastyear?Suomb. Assume the new plant is built and that next year the company manufactures and sells 33,500 balls (the same number as soldlast year). Prepare a contribution format income statement and compute the degree of operating leverage.

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Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

Problem 16E

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Required: 1-a. Compute last year's CM ratio and the break-even point in balls. 1-b. Compute the degree of operating leverage at last year's sales level. 2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $1.50 per ball. If this change takes place and the selling price per remains constant at $30.00, what will be next year's CM ratio and the break-even point in ball balls? 3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $99,000, as last year?
In March, James Electronics had sales of $2,550,000 (25,500 units), total variable expenses of $1,275,000, and total fixed expenses of $825,000. Required: 1. What is the company's CM ratio? CM ratio % A 2. Using the CM ratio, calculate the break-even level of sales in dollars. Break-even level of sales in dollor 3. What is the break-even level of sales in units? Break-even level of sales in units units
The following information is extracted from the income statement of Al Shams Private Ltd. The Price (P) per unit of product is OMR 12 and Variable cost (VC) per unit is OMR 7 and fixed operating cost is OMR 8,000.Answer the following question after analyzing the given table. YEAR 1 YEAR 2 Sales (in units) 5,000 9,500 Sales Revenue (in OMR) ? ? Less: Variable operating costs ? ? Less: Fixed operating costs 8,000 ? Earnings before interest and taxes (EBIT) ? ? Complete the table Calculate the Degree of Operating Leverage (DOL). Interpret your answer (DOL).
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1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year's sales level. 2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3 per ball. If this change takes place and the selling price per ball remains constant at $25, what will be next year's CM ratio and the break-even point in balls? 3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $90,000, as last year?
awn Master Company, a manufacturer of riding lawn mowers, has a projected income for the coming year as follows: Sales $ 37,000,000 Operating expenses: Variable expenses $ 22,200,000 Fixed expenses 7,400,000 Total expenses 29,600,000 Operating profit $ 7,400,000 Required: 1. Determine the breakeven point in sales dollars. 2. Determine the required sales in dollars to earn a before-tax profit of $8,500,000. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) 3. What is the breakeven point in sales dollars if the variable expenses increases by 8%? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)
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