Question

Ramada Company produces one golf cart model. A partially complete table of company costs follows:

Required:
1. Complete the table. (Round your "Cost per Unit" answers to 2 decimal places.)

Number of Golf Carts Produced and Sold	1500 Units	2000 Units	2500 Units
Total Costs
Variable Costs		$840,000
Fixed Costs per year		600,000
Total Costs		$1,440,000
Cost per Unit
Variable Cost per Unit
Fixed Cost per Unit
Total Cost per Unit

  

2. Ramada sells its carts for $1,050 each. Prepare a contribution margin income statement for each of the three production levels given in the table.

Golf Carts Produced and Sold	1500 Units	2000 Units	2500 Units
Contribution Margin
Net Operating Income

4. Calculate Ramada’s break-even point in number of units and in sales revenue. (Round your final answers to the nearest whole number.)

Break-Even Units		Carts
Break-Even Sales Revenue

5. Assume Ramada sold 1,000 carts last year. Without performing any calculations, determine whether Ramada earned a profit last year.   

	Yes?
	No?

6. Calculate the number of carts that Ramada must sell to earn $30,000 profit.  

Target Unit Sales

Carts

              
7. Calculate Ramada’s degree of operating leverage if it sells 2,050 carts. (Round your answer to 4 decimal places. (i.e. .12345 should be entered as 12.345%.))

Degree of Operating Leverage

   
8. Using the degree of operating leverage, calculate the change in Ramada’s profit if sales are 10 percent less than expected. (Round your answer to 3 decimal places.)

Effect on Profit

%

Answer 1

1)
	Number of Golf carts produced and sold				1,500	2,000	2,500
	total costs
	variable costs				630000	840,000	1050000
	fixed costs per year				600,000	600,000	600,000
	total costs				1230000	1,440,000	1650000
	cost per unit
	variable cost per unit				420	420	420
	fixed cost per unit				400	300	240
	total cost per unit				820	720	660
2)	golf carts produced and sold				1,500	2,000	2,500
	Sales	(units*1,050)			1575000	2100000	2625000
	less:Variable cost (units*420)				630000	840,000	1050000
	contribution margin				945000	1,260,000	1575000
	Fixed costs				600,000	600,000	600,000
	Net income				345,000	660,000	975,000
4)	BEP(units) = fixed cost/contribution margin per unit
	BRP(sales revenue)= fixed cost/contribution margin ratio
			contribution margin per unit = 1050 - 420=				630
			Contributiion margin ratio =			630/1050=	0.6	0r 60%
	Break-even units				952	Carts
	Break-even sales revenue				1000000
5)	Yes
	earned profit (since contribution = 1000*630 = 630,000 which is less than fixed cost)
6)	Target unit sales =		(fixed cost+Target profit)/contribution margin per unit
			(600,000+30,000)/630
			1000	units
7)	Degree of operating leverage = contribution /net income
				(630*2050)/(630*2050-600,000)
				1.8677
8)	Effect on profit			18.677	%
	(1.8677*10%)
		profit will fall by 18.677%