A fumiture manufacturer specializes in wood tables. The tables sell for $80 and

Question

A fumiture manufacturer specializes in wood tables. The tables sell for $80 and incur $28 in variable costs. The company has $8,840 in fixed costs per month. Expected sales are 370 tables per month 17. Calculate the margin of safety in units. 18. Determine the degree of operating leverage. Use expected sales. 19. The company begins manufacturing wood chairs to match the tables. Chairs sell for $71 each and have variable costs of $45. The new production process increases fixed costs to $10,140 per month. The expected sales mix is one table or every eight chairs. Calculate the breakeven point in units. 17. Calculate the margin of safety in units Begin by selecting the formula labels and entering the amounts to compute the number of table the company must sell to break even. (Abbreviation used: CM contribution margin. Complete all answer boxes. For items with a zero value, enter "0) vood Required sales in units )r Select the fomula labels and then enter the amounts to compute the margin of safety in units. Margin of safety in units 18. Determine the degree of operating leverage. Use expected sales. Begin by selecting the formula labels and then entering the amounts to compute the degree of operating leverege. (Round the degree of operating leverage to four decimal places, X3X00ox) Degree of operating leverage Choose from any list or enter any number in the input felds and then continue to the next question

Explanation / Answer

Solution 17:

Contribution margin per unit = $80 -$28 = $52

Fixed costs = $8,840

Breakeven point in units = $8,840 / 52 = 170 tables

Expected sales per month = 370 tables

Margin of safety in units = Current sales - breakeven sales = 370 - 170 = 200 units

Solution 18:

Contribution margin at expected sales = 370 * $52 = $19,240

Fixed cost per month = $8,840

Net operating income = $19,240 - $8,840 = $10,400

Degree of operating leverage = Contribution margin / Net operating income = $19,240 / $10,400 = 1.85

Solution 19:

Contribution margin per unit of chairs = $71 - $45 = $26 per unit

Contribution margin per table = $52 per unit

Sales mix between table and chair = 1:8

Weighted average contribution margin per unit = $52*1/9 + $26*8/9 =$28.89 per unit

Fixed costs = $10,140

Breakeven point in units = Fixed costs / Weighted average contribution margin per unit

= $10,140 / $28.89 = 351 units

Breakeven point - table = 351*1/9 = 39 units

Breakven point - Chairs = 351 * 8/9 = 312 units

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