4. The income statement for Nyland Company for 2010 appears below. NYLAND COMPAN

Question

4.

The income statement for Nyland Company for 2010 appears below.

NYLAND COMPANY

Income Statement

For the Year Ended December 31, 2010

——————————————————————————————————————————

Sales (40,000 units) $1,000,000

Variable expenses 700,000

Contribution margin 300,000

Fixed expenses 330,000

Net income (loss) $ (30,000)

Instructions

Answer the following independent questions and show computations using the contribution margin technique to support your answers:

1. What was the company's break-even point in sales dollars in 2010?

2. How many additional units would the company have had to sell in 2011 in order to earn net income of $45,000?

3. If the company is able to reduce variable costs by $2.50 per unit in 2011 and other costs and unit revenues remain unchanged, how many units will the company have to sell in order to earn a net income of $35,000?

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Break Even Sales in Dollars = Fixed Cost/Contribution Ratio = 330000/(300000/1000000) = $ 1100000

Part B:

To earn a net income of 45000. the company needs to sell:

Sales in Dollars = (Fixed Cost + Desired Income)/Contribution Ratio = (330000 + 45000)/.30 = 1250000

Sales in Units = 1250000/25 = 50000

Additional Units = 50000 - 40000 = 10000 units

Part C:

Sales in Units = (Fixed Cost + Desired Income)/Contribution Rate

Current Sales Price = 25

Current Variable Cost = 700000/40000 = 17.5

New Variable Cost = 17.5 - 2.5 = 15

Sales in Units =(330000+35000)/(25-15) = 36500 units

Thanks

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