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 1 year ago

Gilley, Inc., sells a single product. The company's most recent income statement is given below. ...

Gilley, Inc., sells a single product. The company's most recent income statement is given below. Sales (4,000 units) $120,000 Less variable costs (68,000) Contribution margin 52,000 Less fixed expenses (40,000) Net income $ 12,000 Required: Determine the following: a. Contribution margin per unit is $ _______________ per unit b. If sales are doubled to $240,000, total variable costs will equal $ _______________ c. If sales are doubled to $240,000, ...

Gilley, Inc. sells a single product. Gilley's most recent income statement is given below: ...

Gilley, Inc. sells a single product. Gilley's most recent income statement is given below: Sales (sold 4,000 units) $120,000 - Variable costs: Variable manufacturing costs (48,000) Variable selling and general costs (20,000) Contribution margin 52,000 - Fixed costs: Fixed manufacturing costs (30,000) Fixed selling and general costs (10,000) Operating income $ 12,000 a. Contribution margin (CM) per unit is: $ __________ per...

Black Pearl sells a single product. The company's most recent I/S includes the following information Sales...

Black Pearl sells a single product. The company's most recent I/S includes the following information Sales 75000 Variable Manufacturing costs 30,000 Variable Period expenses 10,000 Fixed Manufacturing costs 8,000 Fixed period costs 9,000 A) Determine contribution margin ratio b) determine gross profits c) determine breakeven point in sales d) determine the margin of safety in dollars e) determine sales dollars to achieve $42,000 in after-tax income (assume 25% tax rate) F) Determine the operating leverage at the sales of $75,000

Kilihea Corporation produces a single product. The company's absorption costing income statement for July follows: Kilihea...

Kilihea Corporation produces a single product. The company's absorption costing income statement for July follows: Kilihea Corporation Income Statement For the month ended July 31 Sales (18,500 units) $851,000 Cost of goods sold 579,050 Gross margin 271,950 Selling and administrative expenses: Fixed 129,500 Variable 92,500 Total selling and administrative expense 222,000 Net operating income $ 49,950 The company's variable production costs are $22.30 per unit and its fixed manufacturing overhead totals $176,000 per month. Net operating income under the variable...

Margin of Safety and Operating Leverage Medina Company produces a single product. The projected income statement...

Margin of Safety and Operating Leverage Medina Company produces a single product. The projected income statement for the coming year is as follows: Sales (56,000 units @ $25.00) $1,400,000 Total variable cost 868,000 Contribution margin $ 532,000 Total fixed cost 513,000 Operating income $ 19,000 Required: 1. Compute the break-even sales dollars. $ 2. Compute the margin of safety in sales dollars. $ 3. Compute the degree of operating leverage. 4. Compute the new operating income if sales are 20%...

Randall Company is a merchandising company that sells a single product. The company's inventories, production, and...

Randall Company is a merchandising company that sells a single product. The company's inventories, production, and sales in units for the next three months have been forecasted as follows: October November December Beginning Inventory 10,000 10,000 10,000 Merchandise purchases 60,000 70,000 35,000 Sales 60,000 70,000 40,000 Ending Inventory 10,000 10,000 5,000 a. Units are sold for $12 each. One fourth of all sales are paid for in the month of sale and the balance is paid for in the following...

Mona Company is a merchandising company that sells a single product. The company's inventories, production, and...

Mona Company is a merchandising company that sells a single product. The company's inventories, production, and sales in units for the next three months have been forecasted as follows: October November December Beginning inventory 10,000 10,000 10,000 Merchandise purchases 60,000 70,000 35,000 Sales 60,000 70,000 40,000 Ending inventory 10,000 10,000 5,000 Units are sold for $12 each. One fourth of all sales are paid for in the month of sale and the balance are paid for in the following month....

The Timbrick Company produces and sells a single product. The production of this product requires 15...

The Timbrick Company produces and sells a single product. The production of this product requires 15 liters of direct material for each unit produced. Timbrick has an inventory policy which sets a target ending inventory of finished goods equal to 15% of next months expected unit sales. The target ending inventory for direct materials is 30% of the materials needed for production for next month. The budgeted cost of direct materials is $0.40 per liter. Normally, Timbrick pays the suppliers...

Decaprio Inc. produces and sells a single product. The company has provided its contribution format income...

Decaprio Inc. produces and sells a single product. The company has provided its contribution format income statement for June. Sales (5,500 units) $ 192,500 Variable expenses 82,500 Contribution margin 110,000 Fixed expenses 86,500 Net operating income $ 23,500 If the company sells 5,700 units, its net operating income should be closest to: (Do not round intermediate calculations.)

The Central Valley Company is a merchandising firm that sells a single product. The company's revenues...

The Central Valley Company is a merchandising firm that sells a single product. The company's revenues and expenses for the last three months are given below: April May June Sales in units ................................. 4,500 5,250 6,000 Sales revenue ............................... $630,000 $735,000 $840,000 Less cost of goods sold ……….......... 252,000 294,000 336,000 Gross Margin ................................ 378,000 441,000 504,000 Less operating expenses: Shipping expense ……….............. 56,000 63,500 71,000 Advertising expense ……….......... 70,000 70,000 70,000 Salaries and commissions .......... 143,000...