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Madison Company produces a single product which sells for $30 per unit. Fixed expenses total $13,500...

Madison Company produces a single product which sells for $30 per unit. Fixed expenses total $13,500 per month, and variable expenses are $12 per unit. During the current month, sales, in units, totaled 900 units.

Using the information above, match each of the items listed below with the appropriate amount.

-	Contribution margin per unit.
-	Contribution margin ratio.
-	Break-even point in units.
-	Break-even point in dollars.
-	Total contribution margin at the break-even point.
-	Net income during the current month.
-	Margin of safety during the current month.
-	Margin of safety rate during the current month.
-	Operating leverage during the current month.
-	Sales, in units, needed for a target profit of $3,600.
-	Sales, in dollars, needed for a target profit of $4,500.
-	If sales next month increase by 15%, what will be the net income?

A.	6.0
B.	16.7%
C.	$30,000
D.	60.0%
E.	950 Units
F.	$4,500
G.	750 Units
H.	$18
I.	$22,500
J.	$2,700
K.	$13,500
L.	$5,130

Expert Solution

Per unit 900 units Break even point (750 units)

a. Sales / revenue $30 $27,000 (900 units X $30) $22,500 (750units X $30)

b. Variable cost $12 $10,800 (900 units X $12) $9000 (750 units X $12)

c. Continution margin (a-b) $18 $16,200 $13,500

d. Contibution ratio (c/a) 60% 60%

e. Fixed Cost $13,500

f. Net profit/Income (c-e) $2,700

g. Break Even Point (e/c) 750 units

(Fixed cost / Contribution per unit)

h. Break even point in dollars $22,500

(750 units X $30)

i. margin of safety (a-h) $4,500

(Actual sales - BEP)

(Actual sales - BEP sales)

j. Margin of safety rate

k. Operating leverage (c/f) 6 times

(Contibution / net income)

l. Required sales to get profit of $3,600 =(Fixed cost + $3,600) / Contribution per unit) = 950 units

m. Required sales to get profit of $4,500 = [(Fixed cost + $4,500) / Contribution per unit] X$30 = $30,000

n. If sales increases by 15%, then net income = (Actual net profit + increase in net profit) :

Increase in Net profit X (Sales incerease X Degree of operating leverage) = $2,700 X (15% X 6) = $2,430

There for at at sales which is increased by 15% = $2,700 + $2,430 = $5,130

Answer:

Contribution margin per unit - H.$18

Contribution margin ratio. - D 60%

Break-even point in units. - G. 750 units

Break-even point in dollars. - I. $22,500

Total contribution margin at the break-even point - K. $13,500

Net income during the current month. - J. $2,700

Margin of safety during the current month. F. $4,500

Margin of safety rate during the current month. - B 16.7%

Operating leverage during the current month. -A. 6.0

Sales, in units, needed for a target profit of $3,600. - E. 950 units

Sales, in dollars, needed for a target profit of $4,500. - C$30,000

If sales next month increase by 15%, what will be the net income? - L $5,130

ekkarill92 answered 1 year ago

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