Managers at marc Corp. are concerned that the company’s costs of production have gone wild. The...

Managers at marc Corp. are concerned that the company’s costs of production have gone wild. The chief financial officer brings you the following historic data:

Period	Units	Costs
Quarter 1, 2016	1,120	$111,502.00
Quarter 2, 2016	980	$111,009.00
Quarter 3, 2016	1,260	$114,012.00
Quarter 4, 2016	1,3401	$115,452.00
Quarter 1, 2017	1,280	$114,301.00
Quarter 2, 2017	1,300	$114,689.00
Quarter 3, 2017	1,420	$116,735.00
Quarter 4, 2017	1,500	$118,209.00

marc corp selling price is $80 per unit

Use Excel. Using the High-low method:

Estimate the company’s cost formula.

Estimate the total cost of producing 1,200 units.

Calculate the breakeven point in dollar sales.

Prepare the contribution format income statement when 1,200 units are sold.

Compute the degree of operating leverage when 1,200 units are sold. Compute Net operating income if sales increased 120 units above this level.

Expert Solution

Cost at highest level of activity	118,209.00
Cost at Lowest level of activity	111,009.00
Highest level of activity	1,500.00
Lowest Level of activity	980.00
Variable cost per unit = (118209 - 111009)/(1500 - 980)
Variable cost per unit = 7200/520
Variable cost per unit = $13.85
Fixed Costs = 111009 - 980*13.85
Fixed Costs = $97436

company’s cost formula = 97436 + 13.85x

total cost of producing 1,200 units= 97436 + 1200*13.85	114,056.00

Selling price per unit	80.00
Variable cost per unit	13.85
Contribution per unit	66.15
CM Ratio = 66.15/80	82.69%
Fixed costs	97,436.00
breakeven point in dollar sales = 97436/82.69%	117,836.43

Sales	96,000.00
Less Variable Expenses	16,620.00
Contribution Margin	79,380.00
Fixed cost	97,436.00
Net operating income	(18,056.00)

DOL =	(4.40)
Increase in net income = 4.40*10%	44%
New NOI= 18056 - 18056*44%	(10,111.36)

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