Question
In: Accounting
Breakeven, Target Profit, Margin of Safety, Operating Leverage Pike Street Taffy makes and sells taffy in...
Breakeven, Target Profit, Margin of Safety, Operating Leverage
Pike Street Taffy makes and sells taffy in a variety of flavours in a shop located in the local public market. Data for a recent week are as follows:
|
Revenue (2,000 kgs @ $4.80 per kg) |
$9,600 |
|
|
Cost of ingredients |
$3,200 |
|
|
Rent |
800 |
|
|
Wages |
4,800 |
8,800 |
|
Pretax income |
800 |
|
|
Taxes (20%) |
160 |
|
|
After-tax income |
$ 640 |
All employees work standard shifts, no matter how much taffy is produced or sold.
REQUIRED
A.
Calculate the breakeven point in units and in revenue.
B.
Calculate the number of units and the amount of revenues that would be needed for after-tax income of $3,000.
C.
Calculate the margin of safety in units and the margin of safety percentage.
D.
Calculate the degree of operating leverage.
Solutions
Expert Solution
| P.UNIT | |||||
| REVENUE | 9600 | 4.8 | (9600/2000 | ||
| LESS | COST OF INGREDIENTS | 3200 | 1.6 | 3200/2000 | |
| CONTRIBUTION | 6400 | 3.2 | 6400/2000 | ||
| LESS | RENT | 800 | FIXED COST | ||
| LESS | WAGES | 4800 | |||
| PRE TAX INCOME/EBIT | 800 | ||||
| LESS | TAX | 160 | |||
| AFTER TAX INCOME | 640 |
|
BREAK EVEN POINT= FIXED COST/CONTRIBUTION PER UNIT) * SALES UNIT
|
| BREAK EVEN POINT= FIXED COST/CONTRIBUTION PER UNIT | |||||
| UNIT WISE | 1750 | (5600/3.2) | |||
| REVENUE WISE | 8400 | [(5600/3.2)*4.8] | |||
B do reverse calculation
| units | UNITS | P.UNIT | |||
| REVENUE | 14025 | 2921.875 | 4.8 | ||
| LESS | COST OF INGREDIENTS | 4675 | 2921.875 | 1.6 | |
| CONTRIBUTION | 9350 | 2921.875 | (9350/3.2) | 3.2 | |
| LESS | RENT | 800 | FIXED COST | ||
| LESS | WAGES | 4800 | |||
| PRE TAX INCOME 100% | 3750 | (3000/80%) | |||
| LESS | TAX @20% | 750 | |||
| AFTER TAX INCOME I.E 80% | 3000 | given |
c. margin of saftey percentage method =actual sales - breakeven
point sales) / actual sales
-unit method = actual sales - breakeven point sales) / sale price per unit
1- unit method = 9600-8400)/4.8 = 250
2. percentage = 1200/9600 = 0.125 or 12.5%
D. degree of operating leveage = contribution / EBIT
= 6400/800
=8
ekkarill92 answered 2 years agoRelated Solutions
Breakeven, Target Profit, Margin of Safety Vines and Daughter manufactures and sells swimsuits for $40 each....
Breakeven, Target Profit, Margin of Safety
Vines and Daughter manufactures and sells swimsuits for $40
each.
The estimated income statement for 2017 is as follows:
Sales $2,000,000
Variable costs 1,100,000
Contribution margin 900,000
Fixed costs 765,000
Pretax earnings $ 135,000
REQUIRED
A. Compute the contribution margin per swimsuit and
the number of swimsuits that must be sold to break even.
B. What is the margin of safety in the number of
swimsuits?
C. Suppose the margin of safety was 5,000...
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...
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
$ 13,050,000
Total variable cost
8,482,500
Contribution margin
$ 4,567,500
Total fixed cost
2,472,540
Operating income
$ 2,094,960
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...
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
$9,000,000
Total variable cost
$6,300,000
Contribution
margin
$2,700,000
Total fixed cost
$1,824,000
Operating income
$ 876,000
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....
E6-11 Calculating Target Profit, Margin of Safety, Degree of Operating Leverage [LO 6-2, 6-3, 6-4, 6-5]...
E6-11 Calculating Target Profit, Margin of Safety, Degree of
Operating Leverage [LO 6-2, 6-3, 6-4, 6-5]
Dana’s Ribbon World makes award rosettes. Following is
information about the company:
Variable cost per rosette
$
2.40
Sales price per rosette
5.00
Total fixed costs per month
3900.00
Required:
1. Suppose Dana’s would like to generate a profit of
$1,060. Determine how many rosettes it must sell to achieve this
target profit. (Round your intermediate calculations to 2
decimal places and final answer...
Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage Belmain Co. expects to...
Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart,
Margin of Safety, and Operating Leverage
Belmain Co. expects to maintain the same inventories at the end
of 20Y7 as at the beginning of the year. The total of all
production costs for the year is therefore assumed to be equal to
the cost of goods sold. With this in mind, the various department
heads were asked to submit estimates of the costs for their
departments during the year. A summary report of these...
Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage Belmain Co. expects to...
Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart,
Margin of Safety, and Operating Leverage
Belmain Co. expects to maintain the same inventories at the end
of 20Y7 as at the beginning of the year. The total of all
production costs for the year is therefore assumed to be equal to
the cost of goods sold. With this in mind, the various department
heads were asked to submit estimates of the costs for their
departments during the year. A summary report of these...
Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage Belmain Co. expects to...
Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart,
Margin of Safety, and Operating Leverage
Belmain Co. expects to maintain the same inventories at the end
of 20Y7 as at the beginning of the year. The total of all
production costs for the year is therefore assumed to be equal to
the cost of goods sold. With this in mind, the various department
heads were asked to submit estimates of the costs for their
departments during the year. A summary report of these...
Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage Belmain Co. expects to...
Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart,
Margin of Safety, and Operating Leverage
Belmain Co. expects to maintain the same inventories at the end
of 20Y7 as at the beginning of the year. The total of all
production costs for the year is therefore assumed to be equal to
the cost of goods sold. With this in mind, the various department
heads were asked to submit estimates of the costs for their
departments during the year. A summary report of these...
Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage Belmain Co. expects to...
Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart,
Margin of Safety, and Operating Leverage
Belmain Co. expects to maintain the same inventories at the end
of 20Y7 as at the beginning of the year. The total of all
production costs for the year is therefore assumed to be equal to
the cost of goods sold. With this in mind, the various department
heads were asked to submit estimates of the costs for their
departments during the year. A summary report of these...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Describe the principles and operations of movement sensors: Doppler-Effect Velocity sensor and Spring-Mass Accelerometor; State the...
- This is all one question, thank you so much in advance. The Bigbee Bottling Company is...
- For Questions 1-3: consider the following code: public class A { private int number; protected String...
- You are tasked with assessing the health department’s intervention program in preventing recurrence of acute alcohol...
- Compare the MOSFET, JFET , and BJT and identify the reasons these devices behave differently. What...
- How would you use SAS Enterprise Miner to create a neural network model of your example?
- Explain the use of neural networking modeling in predictive analytics.
ADVERTISEMENT