Keaubie Company has the following data: Product C-25% $155 Product B $55 Product
ID: 2556040 • Letter: K
Question
Keaubie Company has the following data: Product C-25% $155 Product B $55 Product C S90 Product B $20; Product C S65 Product A-40%: Product B-3596; Sales Mix: Sales Price: Unit Variable Unit Contribution Margin: Product A Product A- $99 Product A Product B $75 Product C Costs: a. Compute the break-even point in units for the company. b. Determine the number of units to be sold at the break-even point for each product line. c. Verify that the mix of sales units determined in (b) will generate a zennet income. Use CVP Income Statement How many units will have to be sold in order to generate $100,000 of net income (round to the nearest dollar)? d. e. How many units of each product must be sold to generate the $100,000? FC $672,750 4. The following variable costing income statements are available for Antique Company and Antique Company Contemporary Company $ 700,000 $700,000 Sales revenue Variable costs Contribution margin Fixed costs Net income 350,000 560,000 Instructions (a) Compute the degree of operating leverage for each company (b) Assume that sales revenue increases by 20%. Indicate the increase in net income. (c) Prove the increase in NI for the Antique Company using a CVP Income Statement.Explanation / Answer
Answer
Answer ‘a’
Product
A
B
C
Unit Contribution margin
54
20
65
Sales Mix
40%
35%
25%
Weighted Average contribution margin
$21.6
$7
$16.25
A
Total Weighted Average contribution margin [21.6+7+16.25]
$44.85
B
Total Fixed Costs
$672750
C=B/A
Break Even point in Units
15000
Answer ‘b’
Product
A
B
C
Sales Mix
40%
35%
25%
Break Even Units [15000 units x Sales Mix]
6000
5250
3750
Answer ‘c’
Verification for above
Units
per unit $
Amount $
Total $
Sales Revenue:
A
6000
99
594000
B
5250
75
393750
C
3750
155
581250
$1,569,000
Less: Variable Costs
A
6000
45
270000
B
5250
55
288750
C
3750
90
337500
$896,250
Contribution Margin
$672,750
Less: Fixed Cost
$672,750
Net Income
$0
Answer ‘d’
A
Target Income
$100000
B
Total Fixed Cost
$672750
C=A+B
Total Contribution margin required
$772750
D
Total Weighted Average contribution margin
$44.85
E=C/D
Units to be sold to earn target net income
17230
Answer ‘e’
Product
A
B
C
Sales Mix
40%
35%
25%
Target Units [17230 x Sales Mix]
6892
6030.5
4307.5
Answer ‘a’
Antique Company
Contemporary Company
A
Contribution Margin
$350000
$560000
B
Net Income
$150000
$150000
C=A/B
Degree of Operating Leverage
2.333333333
3.733333333
Answer ‘b’
Antique Company
Contemporary Company
A
Increase in Sales Revenue
20%
20%
B
Degree of Operating Leverage
2.333333333
3.733333333
C=A x B
Increase in Net Income
46.67%
74.67%
D
Net Income before increase
150000
150000
E=D + (DxC)
Net Income after Increase will be:
$220,000
$262,000
Answer ‘c’
Proof of above
Antique Company
Contemporary Company
Sales Revenue (new)
$840000
$840000
(-) New variable Cost
$420000
$168000
Contribution margin
$420000
$672000
(-) Fixed Cost
$200000
$410000
New Net Income [matching with Answer ‘b’ above]
$220000
$262000
Product
A
B
C
Unit Contribution margin
54
20
65
Sales Mix
40%
35%
25%
Weighted Average contribution margin
$21.6
$7
$16.25
A
Total Weighted Average contribution margin [21.6+7+16.25]
$44.85
B
Total Fixed Costs
$672750
C=B/A
Break Even point in Units
15000
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