Question

Cranberry Wood Products Inc. spends an average of $9.50 in labor and $12.40 in materials on every unit it sells. Sales commissions and shipping amount to another $3.10. All other costs are fixed and add up to $143,000 per month. The average unit sells for $32.00.

1. Calculate the DOL when sales are 20%, 30% and 40% above breakeven. Do not round intermediate calculations. Round the answers to two decimal places.

   	DOL
   20%
   30%
   40%

2. Suppose automated equipment is added which increases fixed costs by $20,000 per month. How much will variable cost per unit have to decrease to keep the breakeven point the same? Round the answer to the nearest cent.
   $   per unit
   
3. Calculate the new DOL when sales are 20%, 30% and 40% above breakeven. Do not round intermediate calculations. Round the answers to two decimal places.

   	DOL
   20%
   30%
   40%

Answer 1

1. Break Even Sales (BES)= Fixed Cost / Contribution per Unit.

Contribution Per unit = 32 - (12.4 + 9.5 + 3.1) = 7

BES = 143,000/7 => 20428.57.

Particulars	20% above	30% above	40% above
Sales	24,514.29	26,557.14	28,600.00
Contribution	1,71,600	1,85,900	2,00,200
Fixed Cost	28,600	42,900	57,200
Operating Income	1,43,000	1,43,000	1,43,000
DOL	1.20	1.30	1.40

2. New Fixed Cost = 163,000.

Break even Sales value = 20,428.57 * 32 => 653,714.29

New variable cost per unit = 490,714.29/20,428.57 => 24.02.

Change in VS+C = 24.02 -25 => 0.98.

3. New BES = 163,000/ 7 => 23,285.71

Particulars	20% above	30% above	40% above
Sales	27,942.86	30,271.43	32,600.00
Contribution	1,95,600	2,11,900	2,28,200
Fixed Cost	32,600	48,900	65,200
Operating Income	1,63,000	1,63,000	1,63,000
DOL	1.20	1.30	1.40

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