1) The products contribution margin is 39,000 this is computed by sales minus va
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1) The products contribution margin is 39,000 this is computed by sales minus variable costs. The contribution margin ratio is 65%, this is computed by dividing the unit selling price by the contribution margin per unit. 2) The break-even point in sales units is 20,000 units, this is computed by adding net income, fixed costs, and variable costs. The break-even point in dollars is 41,538 and this is computed by taking fixed costs and dividing them by contribution margin ratio. 3) The margin of safety in dollars is 18,462 and this is computed by taking sales and subtracting it by the break-even sales. 4) The company estimates that sales should increase by 20,000 this year. That means that net operating income will also increase and should be at 32,000 for this year. 5) If sales do increase 25% this year, fixed costs would have to increase 15,000 to stay at a net operating income of 12,000. 6) If we were to reduce the sales price to 2.70 from 3.00 and increase advertising to 3,000 the new break-even point would be 49,180. We get this number by calculating contribution margin per unit and taking that into contribution margin ratio and then dividing fixed costs by contribution margin ratio. 1) The products contribution margin is 39,000 this is computed by sales minus variable costs. The contribution margin ratio is 65%, this is computed by dividing the unit selling price by the contribution margin per unit. 2) The break-even point in sales units is 20,000 units, this is computed by adding net income, fixed costs, and variable costs. The break-even point in dollars is 41,538 and this is computed by taking fixed costs and dividing them by contribution margin ratio. 3) The margin of safety in dollars is 18,462 and this is computed by taking sales and subtracting it by the break-even sales. 4) The company estimates that sales should increase by 20,000 this year. That means that net operating income will also increase and should be at 32,000 for this year. 5) If sales do increase 25% this year, fixed costs would have to increase 15,000 to stay at a net operating income of 12,000. 6) If we were to reduce the sales price to 2.70 from 3.00 and increase advertising to 3,000 the new break-even point would be 49,180. We get this number by calculating contribution margin per unit and taking that into contribution margin ratio and then dividing fixed costs by contribution margin ratio. B&L; Landscapes, Inc. Mini Practice Part 4 Bil Graham and Larry Miller incorporated B&L; Landscapes, Inc. on July, 2014. The business consists of lawn care and sprinkler system installations. In addition, they also sel two types of fertilzer. During 2015. 88L Landscapes, Inc. acquired a 30% interest in Crestline Pipe. The president of Crestline has been expressing concern about the profitability of the company. Bil and LaTy want to help and have volunteered your services to provide some managenial reporting for Crestline. Crestline Pipe distributes high-quality 4 inch PVC pipe that sells for $3.CO per linear foot unit. Vaiable costs are $1.05 per unit, and fixed costs total 27,000 per year Assume that the operating results for last year were: Sales S60,000 Less variable expenses. 21000 Contribution margi Less fixed Net operating income. $ 12.000 39.000 expense27.000 Instructions: Answer the following independent questions: . What is the product's contribution margin? What is the product's CM ratio? 2. Use the contribution margin to determine the break-even point in sales units (round to whole units). Use the CM ratio to determine the break-even point in sales dollars (round to whole dollars). 3. What is the margin of safety in dollars and units for Crestline Pipe? 4. Due to an increase in demand, the company estimates that sales will increase by $20,000 this year. By how much should net operating income increase for net operating loss decrease). assuming that fxed costs do not change? 5. The president expects sales to increase by 25% this year. If sales do increase by 25%. how much could fixed costs increase and stil maintain net operating income of $12.000 6. The president would like to reduce the sales price of the pipe to $2.70 per linear foot unit and increase advertising by $3,000. Using the CMmethod, what is the breakeven point in units with these changes (round to whole units)? How many units would Crestline have to sell to maintain a net operating income of at least $12.000 (round to whole units)? Prepare your answers in a memo to the President of Crestline Pipe. Be sure to show all your work and identify your calculations and your solutions clearty. Remember this report is going to a non-accountant, so be sure to include some explanation of what the numbers meanExplanation / Answer
1)Product contribution margin (in per unit) = 3-1.05= 1.95 per unit or 39000 in total
2)BEP (units) =Fixed cost /contribution per unit
= 27000/1.95
= 13847units
BEP ($) =Fixed cost /CM ratio
= 27000/.65
= $ 41538 [rounded it to 41539 ]
3)Margin of safety (units) = 20000 actual unit sales - 13847 = 6153 units
4)Net operating income will increase by increase in sales *CM ratio
= 20000*.65
= $ 13000
5)Increase in sales : 60000*25%=15000
increase in contribution = 15000*.65=9750
so fixed cost should increase by 9750 to have $ 12000 income at end
6)new contribution = 2.7-1.05 = 1.65
BEP= [27000+3000]/1.65
= 18182 units
Units to sell =[fixed cost+net income desired ]/contribution per unit
=[30000+12000]/1.65
= 25455 units
**when Break even point is to be calculated in unit terms use contribution per unit and when it is required in terms of $ ,use CM ratio
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