Question

In: Accounting

Perkins Company produces and sells a single product. The company's income statement for the most recent...

Perkins Company produces and sells a single product. The company's

income statement for the most recent month is given below:

Sales (15,000 units at $29 per unit) ...........

$435,000

Less variable costs:

Direct materials (variable) ......................

$60,000

Direct labor (variable).............................

75,000

Variable

factory overhead......................

45,000

Variable

selling and other expenses ......

30,000

210,000

Contribution margin............................

225,000

Less fixed expenses:

Fixed

factory overhead ...........................

100,000

Fixed

selling and other expenses............

85,000

185,000

Net operating income...........................

$ 40,000

There are no beginning or ending inventories.

Required:

a. Compute the company's break-even point

in units and sales dollars

.

b. What would the company's monthly net operating income be if

sales

and

total variable costs

increased by 25% and total fixed factory

overhead dropped by $18,000?

c. What total level of sales (in units) must the company achieve in order to

earn a target profit of $115,000?

d. The company has decided to automate a portion of its operations. The

change will reduce direct labor costs per unit by 50 percent, but it will

double the costs for fixed factory overhead. Every other cost remains

unchanged. Compute the new break-even point

in units

.

Expert Solution

a) Calculation of break even point in units:
Contribution margin per unit=225000/15000=$15

Break even point in units= Fixed cost/ contribution margin per unit
=185000/15=12333.33 units
Break even point in units= 12333.33 units

Break even point indollars=12333.33*29=$357666.57

b)Calculation of net operating income
Particulars	Amount
Sales(435000*1.25)	543750
Less: Variable costs(210000*1.25)	262500
Contribution	281250
Less: Fixed factory overhead(100000-18000)	82000
Less: Fixed selling and other expense	85000
Net operating income	114250

c)Calculation of sales:
Sales=(fixed cost+target income)/ contribution per unit
=(185000+115000)/15=20000 units
Sales=20000 units

d)Calculation of net operating income
Particulars	Amount
Sales	435000
Less:Direct material	60000
Less: Direct labour(75000*0.5)	37500
Less: Variable factory overhead	45000
Less: Variable selling and other expenses	30000
Contribution	262500
Less: Fixed factory overhead(100000*2)	200000
Less: Fixed selling and other expense	85000
Net operating income	-22500

contribution per unit=262500/15000=$17.5
Break even point in units=(200000+85000)/17.5=16285.71 units

ekkarill92 answered 9 months ago

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