ny produces and sells a single product. The corm 2(10 points) Perkins Compa inco
ID: 2555408 • Letter: N
Question
ny produces and sells a single product. The corm 2(10 points) Perkins Compa income statement for the most recent month is given below:mpy's Sales (15,000 units at $29 per unit)... Less variable costs: $435,000 Direct materials (variable... Direct labor (variable. Variable factory overhead 45,000 Variable selling and other expenses..... 30,000 210,000 75,000 Contribution margin 225,000 Less fixed expenses: ... Fixed selling and other expense...85,000 185,000 Fixed factory overhead Net operating incom.e... $40,000 There are no beginning or ending inventories. Required: a. Compute the company's break-even point in units and sales dollars. b. What would the company's monthly net operating income be if sales and total variable costs increased by 25% and total fixed factory overhead dropped by $18,000? What total level of sales (in units) must the company achieve in order to earn a target profit of $115,000? The company has decided to automate a portion of its operations. The change will reduce direct labor costs per unit by 50 percent, but it will double the costs for fixed factory overhead. Every other cost remains unchanged. Compute the new break-even point in units. c. d.Explanation / Answer
Answers
Units
per unit
Amount
Sales
15000
$ 29.00
$ 4,35,000.00
(-) Variable cost
Direct materials
15000
$ 4.00
$ 60,000.00
Direct Labor
15000
$ 5.00
$ 75,000.00
Factory Overhead
15000
$ 3.00
$ 45,000.00
Selling & Other expenses
15000
$ 2.00
$ 30,000.00
Contribution margin
15000
$ 15.00
$ 2,25,000.00
(-) Fixed Expenses:
Factory Overhead
$ 1,00,000.00
Selling & Other expenses
$ 85,000.00
Net Operating Income
$ 40,000.00
A
Fixed Costs
$185000
B
Contribution Margin per unit [calculated above]
$15
C=A/B
Break Even point in Units
12333
D
Sale price per unit
$29
E=CxD
Break Even point in Sales dollars
$357,657
New Sales revenue
$543750
(-) New variable Cost
$262500
New Contribution margin
$281250
(-) New Fixed Expenses
$167000
New Net operating Income
$114250
Current Net Operating Income
$40000
Increase in Operating Income as a result
$74250
A
Target Profit
$115000
B
Total Fixed Cost
$185000
C=A+B
Total contribution margin required
$300000
D
Contribution per unit
$15
E=C/D
Total Level of Sales (in Units) required for earning Target Profits
20000 units
Working
per unit
Sales
$ 29.00
(-) Variable cost
Direct materials
$ 4.00
Direct Labor [reduced to 50%]
$ 2.50
Factory Overhead
$ 3.00
Selling & Other expenses
$ 2.00
New Contribution margin
$ 17.50
Answer:
A
Total Fixed Cost [(100000 x 2) + 85000]
$285000
B
New Contribution per unit
$17.5
C=A/B
Break Even point in Units
16286 units
Units
per unit
Amount
Sales
15000
$ 29.00
$ 4,35,000.00
(-) Variable cost
Direct materials
15000
$ 4.00
$ 60,000.00
Direct Labor
15000
$ 5.00
$ 75,000.00
Factory Overhead
15000
$ 3.00
$ 45,000.00
Selling & Other expenses
15000
$ 2.00
$ 30,000.00
Contribution margin
15000
$ 15.00
$ 2,25,000.00
(-) Fixed Expenses:
Factory Overhead
$ 1,00,000.00
Selling & Other expenses
$ 85,000.00
Net Operating Income
$ 40,000.00
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