Cutlaas Company\'s projected profit for the coming year is as follows: Compute t
ID: 2417056 • Letter: C
Question
Cutlaas Company's projected profit for the coming year is as follows: Compute the break-even point in units. How many units must be sold to earn a profit of $30,000? Compute the contribution margin ratio. Using that ratio, compute the additional profit that Cutlass would earn if sales were $25,000 more than expected. Suppose Cutlaas would like to earn operating income equal to 20 percent of sales revenue. How many units must be sold for this goal to be realized? Prepare an income statement to verify your answer.Explanation / Answer
1. Break even Point in Units:
Sales Price per unit = $ 20
Variable Cost per unit = $ 12
Contribution per unit = (20-12) = $ 8
Fixed expenses = $ 64000
Break even point = 64000/8 = 8000 units.
Therefore, Break even point = 8000 Units.
2. How may units to be sold to earn $ 30,000:
Fixed expenses = $ 64,000
Income = $ 30,000
Total contribution to be required = $ 94,000
Contribution per unit = $ 8
Total units to be sold = $ 94,000/8 = 11,750 Units
Therefore, the number of units to be sold to earn $ 30,000 = 11,750 Units.
3. Sales Price per unit: = $ 20
Variable Expense per unit = $ 12
Contribtuion per unit = $ 8
Contribution margin ration = 8/12 = 40%
additional sales = $ 25,000
additional profit = 40% of 25,000 = $ 10,000
4. Sales price per unit = $ 20
Variable cost per unit = $ 12
revenue per unit = $ 4
Contribution per unit =(20-12-4) = $ 4
Contribution required = $ 64000
Total number of units to be sold = 640000/4 = 16,000 Units.
Income Statement:
Sales = 16000 units @ 20 = $ 320,000
Varaible Cost @ 12 per unit = $ 192,000
Contribution = $ 128,000
Fixed Cost = $ 64,000
Operating Income = $ 64,000 (is mathched with 20% of sales revenue i.e 20% of 320,000 = $ 64,000)
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