GIVEN: X Company manufactures and sells Product IV. As part of the budgeting pro

Question

GIVEN: X Company manufactures and sells Product IV. As part of the budgeting process, management made the following estimates for 2016 related to the production and sale of 10,000 units of Product IV. X Company maintains near zero inventory levels at year-end so the total of all production costs approximates cost of goods sold. Product IV sells for $125 per unit.

Estimated

Fixed Costs

Estimated

Variable Costs

Production Costs:

Direct Materials

$157,200

Direct Labor

$198,000

Factory Overhead

$60,000

$28,400

Selling & Administrative Costs:

Salaries & Commissions

$168,000

$110,800

Advertising

$52,000

Miscellaneous selling & administrative

$20,000

$5,600

$300,000

$500,000

REQUIRED: (Show supporting calculations.)

Part 1:   Prepare an estimated product income statement for 2016 using the contribution margin format.

Part 2:   Determine the expected contribution margin per unit and the contribution margin ratio.

Part 3:   Determine the breakeven point in units and dollars.

Part 4:   Determine the expected margin of safety in dollars, units, and as a percentage of sales.

Part 5:   Determine the degree of operating leverage.

Part 6:   Construct a cost-volume-profit graph for the range of 0 units to 10,000 units. Label the axes, lines and breakeven point.

This is way beyond me, so if you can do it, it would help me tremendously. Thank you for taking the time to look at this.

Estimated

Fixed Costs

Estimated

Variable Costs

Production Costs:

Direct Materials

$157,200

Direct Labor

$198,000

Factory Overhead

$60,000

$28,400

Selling & Administrative Costs:

Salaries & Commissions

$168,000

$110,800

Advertising

$52,000

Miscellaneous selling & administrative

$20,000

$5,600

$300,000

$500,000

Explanation / Answer

Answer:

Part 1 -- Income Statement for 2016

Part - 2 : Determination of the expected contribution margin per unit and the contribution margin ratio:

Contribution Margin Per Unit = Sale Price Per Unit - Variable Cost Per Unit

Sale Price Per Unit = $125

Variable Cost Per Unit = Total Variable Cost / Total Units = $500,000 / 10,000 Units = $50 Per Unit

Contribution Margin Per Unit = $125 - $50 = $75 Per Unit

Contribution Margin Ratio = COntribution Per Unit / Sales Price Per Unit x 100 = $75 / $125 x 100 = 60%

Part 3:   Determination of the breakeven point in units and dollars.

Break Even Point In Units = Total Fixed Cost / Contribution Per Unit = $300,000 / $75 = 4,000 Units

Break Even Point in Dollars = Total Fixed Cost / Contribution margin ratio = $300,000 / 60% = $500,000

Or You can also calculate Break Even Point in Dollars = Break Even Units x Selling Price per unit = 4,000 Units x $125 = $500,000

Part 4:   Determine the expected margin of safety in dollars, units, and as a percentage of sales.

Margin of Safery in dollars = Total Sales - Break Even Sales in Dollars = $1,250,000 - $500,000 = $750,000

Margin of Safery in Units = Estimated Sales Units - Break Even Sales Units = 10,000 Units - 4,000 Units = 6,000 Units

Margin of Safety as a percentage of Sales = Margin of Safety / Estimated Sales x 100 = $750,000 / $1,250,000 x 100 = 60%

Part 5:   Determination of the degree of operating leverage.

Degree of Operating Leverage = Contribution / Operating Profit = $750,000 / $450,000 = 1.67 times

Part -6 --- Please ask separate question as it is involved lot of work...

thanks...hope you find the above solution upto the mark and help you. I would like to help you more in future...

Income Statement for 2016 Estimated Production and Sale Units 10,000 Units Particulars Amount Sales $1,250,000 Less: Variable Cost Direct Material Cost $157,200 Direct Labour Cost $198,000 Variable Factory Overhead $28,400 Variable Salaries and Commission $110,800 Variable Misc Selling and Administrative Exp $5,600 Total Variabel Cost $500,000 Contribution Margin (Sales - Variable Cost) $750,000 Less: Fixed Cost Fixed Factory Overheads $60,000 Fixed Salaries and Commissions $168,000 Fixed Advertising Cost $52,000 Fixed Misc Selling and Administrative Expenses $20,000 Total Fixed Cost $300,000 Operating Profit (Contribution - Fixed Cost) $450,000

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