Voltar Company manufactures and sells a specialized cordless telephone for high
ID: 2467533 • Letter: V
Question
Voltar Company manufactures and sells a specialized cordless telephone for high electromagnetic radiation environments. The company's contribution format income statement for the most recent year is given below:
Total Per Unit Percent of Sales
Sales (20,000 units).......... $1,200,000 $60 100%
Variable expenses.......... 900,000 45 ?%
Contribution margin.......... 300,000 $15 ?%
Fixed expenses.......... $240,000
Net operating income.......... $60,000
Management in anxious to increase the company's profit and has asked for an analysis of a number of items.
Required:
1. Compute the company's CM ratio
2. Compute the company's break-even point in both unit sales and dollar sales
3. Assupe theat sales increase by $400,000 next year. If cost behavior patterns remain unchanged, by how much will the company's net operating income increase?
4. Refer to the origional data. Assume that next year managementwants the company to earn a profit of at least $90,000. How many units will have to be sold to meet this target profit?
5. Refer to the original data. Compute the company's margin of savety in both dollar and percentage form.
6. How much is the operating leverage?
Explanation / Answer
1 CM Ratio Contribution/Sales*100 (300000/1200000)*100 25% 2 Break Even point In Unit Sales Fixed expenses/Contribution per unit 240000/15 16000 units In Dollar Sales Fixed expenses/Contribution Margin ratio 240000/25% 960000 3 Assupe theat sales increase by $400,000 next year. If cost behavior patterns remain unchanged, by how much will the company's net operating income increase Sales 1600000 Variable expenses 1200000 Contribution 400000 Fixed expenses 240000 Net operating income 160000 4 Refer to the origional data. Assume that next year managementwants the company to earn a profit of at least $90,000. How many units will have to be sold to meet this target profit? Sales 1320000 100% Variable expenses 990000 75% Contribution 330000 25% 990000 1320000 Fixed expenses 240000 Net operating income 90000 No of units to be sold 22000 1320000/60
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