A furniture manuflacturer specializes in wood tables. The tables sell for $200 p

Question

A furniture manuflacturer specializes in wood tables. The tables sell for $200 per unit and incur $80 per unit in wariable costs. The company has $9,600 in fxed costs per month, Expected sales are 230 tables per month 17. Celoulate the margin of safety in units Delemine the degree of operating leverage Use expected saies 19.. The company begns mand a ng wood ears to maets tabl" Oan seller$43 each rd heve war abie oosts o, S25. The rew proteton process noreases fnd?to$1,600 per month. Theexpected saes m?sone table for every eignt chairs. Caiculate the breakeven point in units for each product 18 Detemine the degree of operating leverage Use expected saies Begin by seliecting the fomula Wbels and then eering the amounts to compute the degree of operating everae (ound the degree of operaing leverage to four decimal places, X.X000x) Contribution marginOperating income Degree of operating leveage 19. The company begins manufacturing wood chairs to match the tables Chairs sell for $43 each and have variable costs of $25 The new production process increases fxed costs to $11,600 per month. The expected sales mix is one table for every eight chairs Caioulate the breakeven point in units for each product Tables Chairs

Explanation / Answer

17). Margin of safety = expected sales - breakeven sales(note 1)

=230-80

=150 units

Note 1: Break even Sales = Fixed cost/ Contribution per unit *

=9600$/120$

= 80 units

*Contribution per unit = Sales - variable cost

18) Degree of Operating Leverage = Contribution margin / Operating Income

= (Sales- Variable cost) / (Sales- Variable cost- Fixed Cost)

=[(230*200)-(230*80)] / [(230*200)-(230*80)-9600]

=27,600/18000

=1.533333

19) weighted average contribution margin :

8

weighted average contribution margin per unit = (120+144)/(1+8)

=29 $

Break even point in units = Fixed cost/ Contribution per unit

=11,600$/29$

=400 units

Particulars tables chairs sale price 200 43 variable cost 80 25 contribution 120 18 sales mix ratio 1

8

contribution margin 120(120*1) 144(18*8)

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