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In: Accounting

Break-Even Units, Contribution Margin Ratio, Multiple-Product Breakeven, Margin of Safety, Degree of Operating Leverage Jellico Inc.'s...

Break-Even Units, Contribution Margin Ratio, Multiple-Product Breakeven, Margin of Safety, Degree of Operating Leverage

Jellico Inc.'s projected operating income (based on sales of 450,000 units) for the coming year is as follows:

Total
Sales $ 9,450,000
Total variable cost 5,575,500
Contribution margin $ 3,874,500
Total fixed cost 2,625,189
Operating income $ 1,249,311

Required:

1(a). Compute variable cost per unit. Enter your answer to the nearest cent.
$per unit

1(b). Compute contribution margin per unit. Enter your answer to the nearest cent.
$per unit

1(c). Compute contribution margin ratio.
%

1(d). Compute break-even point in units.
units

1(e). Compute break-even point in sales dollars.
$

2. How many units must be sold to earn operating income of $345,261?  
units

3. Compute the additional operating income that Jellico would earn if sales were $50,000 more than expected.
$

4. For the projected level of sales, compute the margin of safety in units, and then in sales dollars.

Margin of safety in units units
Margin of safety in sales dollars $

5. Compute the degree of operating leverage. Round your answer to one decimal place.

6. Compute the new operating income if sales are 10% higher than expected. Enter your answer to the nearest whole dollar.
$

Solutions

Expert Solution

Requirement 1a.

variable cost per unit = Total variable cost / Units sold = 5575500 / 450000 = $12.39

Requirement 1b

contribution margin per unit = . Contribution margin / Units sold = $3874500 / 450000 = $8.61

Requirement 1c.

contribution margin ratio. = Contribution margin / Sales = $3874500 / $ 9,450,000 = 41%

Requirement 1d.

Break-even point in units = Total fixed cost / contribution margin per unit = $2625189 / $8.61 = 304900 units

Requirement 1e.

break-even point in sales dollars.= Total fixed cost / contribution margin ratio.= $2625189 / 41% = $6402900

Requirement 2

Target Sale Units = (Total fixed cost + operating income ) / contribution margin per unit

                          = ( 2625189 + 345261 ) / $8.61

                          = 345000 units

Requirement 3

New sales = $9500000 ; Contribution margin = 9500000 x 41% = 3895000 Operating income = 3895000 - 2,625,189 = 1269811

Requirement 4

Margin of safety in units = Sales units - Breakeven units = 450000 - 304900 = 145100 units

Margin of safety in sales dollars = $9450000 - $6402900 = $3047100

Requirement 5

degree of operating leverage = Contribution margin/ Operating income = 3874500 / 1249311 = 3.10

Requirement 6

New Sales = 9450000 x 1.10 = 10395000 ; Contribution margin = 10395000 x 41% = 4261950

Operating income = 4261950 - 2625189 = 1636761

ekkarill92 answered 2 years ago
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