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Gibson Company makes a product that sells for $33 per unit. The company pays $23 per...

Gibson Company makes a product that sells for $33 per unit. The company pays $23 per unit for the variable costs of the product and incurs annual fixed costs of $95,000. Gibson expects to sell 22,600 units of product.

Margin of Safety. %

Zachary Corporation, which has three divisions, is preparing its sales budget. Each division expects a different growth rate because economic conditions vary in different regions of the country. The growth expectations per quarter are 5 percent for Cummings Division, 3 percent for Springfield Division, and 7 percent for Douglas Division.

  1. Complete the sales budget by filling in the missing amounts.

  2. Determine the amount of sales revenue that the company will report on its quarterly pro forma income statements.

Determine Gibson’s margin of safety expressed as a percentage. (Round your answer to 2 decimal places (i.e., .2345 should be entered as 23.45).)

Complete the sales budget by filling in the missing amounts. (Round your final answers to the nearest whole dollar amount.)
Division First Quarter Second Quarter Third Quarter Fourth Quarter
Cummings Division $110,000
Springfield Division 310,000
Douglas Division 200,000

Determine the amount of sales revenue that the company will report on its quarterly pro forma income statements. (Round intermediate calculations and final answers to the nearest whole dollar amount.)
First Quarter Second Quarter Third Quarter Fourth Quarter
Sales revenue

Solutions

Expert Solution

1
Selling price per unit $33
Variable expense per unit $23
Contribution margin per unit $10
CM Ratio ($10/$33) 30.30%
Break-even in dollar sales $313,500
(Fixed expenses/Contribution margin ratio)
Margin of safety percentage 58%
(Actual Sales - Break-even sales)/Actual sales
[(22,600 x $33) - $960,000]/(22,600 x $33)
2
Division First Quarter Second Quarter Third Quarter Fourth Quarter
Cummings Division           110,000                    115,500                        121,275                    127,339
Springfield Division           310,000                    319,300                        328,879                    338,745
Douglas Division           200,000                    214,000                        228,980                    245,009
First Quarter Second Quarter Third Quarter Fourth Quarter
Sales Revenue           620,000                    648,800                        679,134                    711,093
Working
Second Quarter Third Quarter Fourth Quarter
Division First quarter x 1.05 Second quarter x 1.05 Third quarter x 1.05
Cummings Division First quarter x 1.03 Second quarter x 1.03 Third quarter x 1.0
Springfield Division First quarter x 1.07 Second quarter x 1.07 Third quarter x 1.07

ekkarill92 answered 1 year ago
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