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In: Finance

Niko's manufacturing Income Statement is presented in the next table ( units sold 750,000) Per Unit...

Niko's manufacturing Income Statement is presented in the next table ( units sold 750,000)

Per Unit Total
Sales $48.00 $36,000,000

Variable Costs
Direct Materials $14.00 $10,500,000.00
Direct Labor $10.00 $7,500,000.00
Factor Overhead $3.50 $2,625,000.00
Selling $1.50 $1,125,000.00
Total Variable Cost $21,750,000.00

Fixed Cost
Overhead $5.27 $3,950,000.00
Selling $4.67 $3,500,000.00
Administrative $6.53 $4,900,000.00

Total Fixed Costs $12,350,000.00
Pre Tax Income $1,900,000.00

Required

Calculate Contribution Margin per unit

Calculate Contribution Margin Ratio

Calculate Break Even Point in units

Calculate Break Even Point in $sales

What is the actual % margin of safety in units?

What is the actual % margin of safety in $sales?

Calculate actual Degree of Operating Leverage

If Niko’s pretax income goal is 9 million, how much units the company needs to sale

If Niko’s pretax income goal is 9 million, how much will be the $sales

A new technology will increase the operations’ efficiency. This new technique will reduce the direct material cost per unit by $1.00 and the direct labor cost by $.50, but will increase the fixed overhead cost by 1.5 million. The company is considering the implantation of this new technology.

Using this new data:

Calculate Contribution Margin per unit

Calculate Contribution Margin Ratio

Calculate Break Even Point in units

Calculate Break Even Point in $sales

Calculate Degree of Operating Leverage (with sales of 750,000 units)

Is the new technology a good decision?

How you explain the change in degree of operating leverage?

Solutions

Expert Solution

Selling Price per unit = $48.00
Variable Cost per unit = $29.00
Fixed Costs = $12,350,000

Contribution Margin per unit = Selling Price per unit - Variable Cost per unit
Contribution Margin per unit = $48.00 - $29.00
Contribution Margin per unit = $19.00

Contribution Margin Ratio = Contribution Margin per unit / Selling Price per unit
Contribution Margin Ratio = $19.00 / $48.00
Contribution Margin Ratio = 39.58%

Breakeven Point in units = Fixed Costs / Contribution Margin per unit
Breakeven Point in units = $12,350,000 / $19.00
Breakeven Point in units = 650,000

Breakeven Point in sales = Breakeven Point in units * Selling Price per unit
Breakeven Point in sales = 650,000 * $48.00
Breakeven Point in sales = $31,200,000

Margin of Safety in units = Sales in units - Breakeven Point in units
Margin of Safety in units = 750,000 - 650,000
Margin of Safety in units = 100,000

Margin of Safety in sales = Sales in units - Breakeven Point in units
Margin of Safety in sales = $36,000,000 - $31,200,000
Margin of Safety in sales = $4,800,000

Degree of Operating Leverage = (Sales - Variable Costs) / Pretax Income
Degree of Operating Leverage = ($36,000,000 - $21,750,000) / $1,900,000
Degree of Operating Leverage = 7.50

jeff jeffy answered 2 years ago
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