Question

In: Accounting

Cantor Products sells a product for $83. Variable costs per unit are $46, and monthly fixed...

Cantor Products sells a product for $83. Variable costs per unit are $46, and monthly fixed costs are $125,800.   

a. What is the break-even point in units?



b. What unit sales would be required to earn a target profit of $321,900?



c. Assume they achieve the level of sales required in part b, what is the degree of operating leverage? (Round your answer to 3 decimal places.)

   

d. If sales decrease by 30% from that level, by what percentage will profits decrease? (Do not round intermediate calculation. Round your answer to 2 decimal places.)



c. What sales revenue is needed to achieve a $332,250 per month profit?

Solutions

Expert Solution

a.
Break even in point = Fixed Cost/Contribution margin per unit
= $ 1,25,800 / $ 37
= 3,400
Working;
Contribution margin per unit = Sales - Variable cost
= $             83 - $                46
= $             37
b. Unit sales = Target Contribution margin / Contribution margin per unit
= $          4,47,700 / $          37
=                  12,100
Working:
Target Contribution margin = Fixed Cost + Target profit
= $ 1,25,800 + 321900
= $ 4,47,700
c. Degree of operating leverage = Contribution margin/Net operating income
= $ 4,47,700 / $    3,21,900
=           1.391
Working:
Per Unit Total
Sales $             83 $ 10,04,300
Variable cost $             46 $   5,56,600
Contribution margin $             37 $   4,47,700
Fixed cost $   1,25,800
Net Operating income $   3,21,900
e. Decrease in profit = Decrease in sales x degree of operating leverage
= 30% x              1.391
= 41.72%
f. Sales revenue = Target contribution margin / Contribution margin ratio
= $          4,58,050 / 44.58%
= $       10,27,518
Working:
Contribution margin ratio = Contribution margin / Sales
= $             37 / $                83
= 44.58%
Target contribution margin = Fixed cost+Target profit
= $ 1,25,800 +        3,32,250
= $ 4,58,050

ekkarill92 answered 1 year ago
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