Question

In: Accounting

Cost Volume Profit Analysis Sports Company manufactures basketballs. The company has a standard ball that sells...

Cost Volume Profit Analysis


Sports Company manufactures basketballs. The company has a standard ball that sells for $25. The variable cost are $ 15 per ball. Last year the company sold 30,000 balls. The fixed expenses are $ 210,000.


Required.


  1. Prepare a Contribution Income Statement
  2. Compute the Contribution Margin per Unit, Variable Expense Ratio and Contribution Margin Ratio
  3. Compute the Break Even Point in dollars and units
  4. Compute the Margin of Safety
  5. Due to a increase in labor rates, the company estimates that variable costs will increase by $3 per ball next year. If this change takes place and the selling price per ball remains constant at $25, what will be the new Contribution margin ratio and Break Even Point in balls.
  6. Refer to data in (4) above. If the expected change in variable expense takes place, how many balls will have to be sold next year to earn the net income of $100,000 .


  1. Refer to the original data. The company is discussing the construction of a new automated plant to manufacture the balls.. The new plant would slash variable expenses per ball by 40%, but it would cause fixed expenses to double in amount per year. If the new plant is built, what would be the company's new Contribution Margin Ratio and new Break-Even Point.

Solutions

Expert Solution

Contribution Income Statement

Sales Revenue

       750,000

Less: Variable costs

       450,000

Contribution Margin

       300,000

Less: Fixed Expenses

       210,000

Operating Income

          90,000

CM per unit = 300,000/30,000 = $10

Variable Expense Ratio = Variable Expenses/Sales

= 450,000/750,000 = 60%

CM ratio = CM/Sales

= 300,000/750,000

=40%

Break point in Balls = Fixed costs/CM per unit

= 210,000/10

= 21,000 units

In Dollars = 210,000/40% = $525,000

Margin of Safety = Total Sales – Break even Sales = 750,000-525,000 = $225,000

CM Ratio = (25-15-3)/25 = 28%

Break even point = 210,000/7 = 30,000 balls

Units required to be sold = (100,000+210,000)/7 = 44,285.71 units

New CM ratio = (25 – 15*0.6)/25 = 64%

Break even point = (210,000*2)64% =$656,250

i.e. 26,250 units

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball...
Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 32,000 of these balls, with the following results: Sales (32,000 balls) $ 800,000 Variable expenses 480,000 Contribution margin 320,000 Fixed expenses 211,000 Net operating income $ 109,000 Required: 1. Compute...
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the...
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 44,000 of these balls, with the following results: Sales (44,000 balls) $ 1,100,000 Variable expenses 660,000 Contribution margin 440,000 Fixed expenses 317,000 Net operating income $ 123,000 Required: 1....
Northwood Company Manufactures basketballs. The company has a ball that sells for $25. At present, the...
Northwood Company Manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labour workers. Therefore, the variable costs are high, totaling $15 per ball. Assuming that the new plant is built and the next year the manufactures and sells 30,000 balls (the same number as sold last year). The contribution income is: Sales - 750,000, less: variable expenses - 270,000. Thus, contribution margin is...
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the...
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 60,000 of these balls, with the following results: Sales (60,000 balls) $ 1,500,000 Variable expenses 900,000 Contribution margin 600,000 Fixed expenses 375,000 Net operating income $ 225,000 Required: 1....
Northwood Company manufactures basketballs. The company has a ball that sells for $30. At present, the...
Northwood Company manufactures basketballs. The company has a ball that sells for $30. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $18.00 per ball, of which 60% is direct labor cost.     Last year, the company sold 51,000 of these balls, with the following results:   Sales (51,000 balls) $ 1,530,000   Variable expenses 918,000   Contribution margin 612,000   Fixed expenses 492,000   Net operating income $ 120,000 Required: 1-a....
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the...
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 62,000 of these balls, with the following results: Sales (62,000 balls) $ 1,550,000 Variable expenses 930,000 Contribution margin 620,000 Fixed expenses 426,000 Net operating income $ 194,000 1. Compute...
Northwood Company manufactures basketballs. The company has a ball that sells for $23. At present, the...
Northwood Company manufactures basketballs. The company has a ball that sells for $23. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable costs are high, totaling $15 per ball, of which 65% is direct labor cost. Last year, the company sold 30,000 of these balls, with the following results:                 Sales (30000 balls) $690,000 Variable expenses 450,000 Contribution margin 240,000 Fixed expenses 150,000 Net operating income $90,000                               5. Refer to...
Northwood Company manufactures basketballs. The company has a ball that sells for $35. At present, the...
Northwood Company manufactures basketballs. The company has a ball that sells for $35. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $24.50 per ball, of which 70% is direct labor cost. Last year, the company sold 55,000 of these balls, with the following results: Sales (55,000 balls) $1,925,000 Variable expenses 1,347,500 Contribution margin 577,500 Fixed expenses 472,500 Net operating income $ 105,000 1. Compute (a)...
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the...
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 30,000 of these balls, with the following results: Sales (30,000 balls) $ 750,000 Variable expenses 450,000 Contribution margin 300,000 Fixed expenses 210,000 Net operating income $ 90,000 Required: 1....
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the...
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 54,000 of these balls, with the following results: Sales (54,000 balls) $ 1,350,000 Variable expenses 810,000 Contribution margin 540,000 Fixed expenses 372,000 Net operating income $ 168,000 Required: 1....
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT