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The year end income statement for Sophie Corporation is presented below: Sophie Corporation Income Statement For...

The year end income statement for Sophie Corporation is presented below:

Sophie Corporation
Income Statement
For the Year Ended December 31, 2019
Sales (560 units) $28,000
Cost of Goods Sold
Labor $7,000
Material $8,400
Fixed Overhead $1,400 $16,800
Gross Profit $11,200
Administrative Expense
Fixed $4,200
Variable $2,800 $7,000
Operating Income $4,200


Do not enter dollar signs or commas in the input boxes.
Round all answers to the nearest whole number.
For Unit calculations round your answers up to the nearest whole number.

a) Calculate the Contribution Margin and Operating Income for the year.
Contribution Margin: $Answer
Operating Income: $Answer

b) Calculate the contribution margin ratio.
Contribution Margin Ratio: Answer%

c) Calculate the break-even sales and break-even units.
Break-even units: Answer
Break-even sales: $Answer

d) Suppose the company would like to generate an operating profit of $5,000. Determine the revenue that is needed to obtain this target, and calculate the number of units that need to be produced to meet this goal.
Target units: Answer
Target sales: $Answer

e) Given the company's current yearly sales amount is $28,000, what is the margin of safety in dollars and in units?
Margin of Safety (units): Answer
Margin of Safety (Dollar): $Answer

Solutions

Expert Solution

Answer a.

Variable Cost = Labor + Material + Variable Administrative Expense
Variable Cost = $7,000 + $8,400 + $2,800
Variable Cost = $18,200

Contribution Margin = Sales - Variable Cost
Contribution Margin = $28,000 - $18,200
Contribution Margin = $9,800

Fixed Cost = Fixed Overhead + Fixed Administrative Expense
Fixed Cost = $1,400 + $4,200
Fixed Cost = $5,600

Operating Income = Contribution Margin - Fixed Cost
Operating Income = $9,800 - $5,600
Operating Income = $4,200

Answer b.

Contribution Margin per unit = Contribution Margin / Units Sold
Contribution Margin per unit = $9,800 / 560
Contribution Margin per unit = $17.50

Contribution Margin Ratio = Contribution Margin / Sales
Contribution Margin Ratio = $9,800 / $28,000
Contribution Margin Ratio = 35%

Answer c.

Breakeven Units = Fixed Cost / Contribution Margin per unit
Breakeven Units = $5,600 / $17.50
Breakeven Units = 320

Breakeven Sales = Fixed Cost / Contribution Margin Ratio
Breakeven Sales = $5,600 / 0.35
Breakeven Sales = $16,00

Answer d.

Target Units = (Fixed Cost + Target Profit) / Contribution Margin per unit
Target Units = ($5,600 + $5,000) / $17.50
Target Units = 606

Target Sales = (Fixed Cost + Target Profit) / Contribution Margin Ratio
Target Sales = ($5,600 + $5,000) / 0.35
Target Sales = $30,286

Answer e.

Margin of Safety (Units) = Actual Units Sold - Breakeven Units
Margin of Safety (Units) = 560 - 320
Margin of Safety (Units) = 240

Margin of Safety (Sales) = Actual Sales - Breakeven Sales
Margin of Safety (Sales) = $28,000 - $16,000
Margin of Safety (Sales) = $12,000

ekkarill92 answered 2 years ago
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