1o the student: You will need the information provided below to answer certain q

Question

1o the student: You will need the information provided below to answer certain quest the exam. Please print and use for exam #2. Use the following to answer questions 6 through 10: Pumbaa Inc. sells a single product. Pumbaa's income statement for the most recent year is presented below. Sales (4,000 units) Less variable expenses Contribution margin Less fixed expenses Operating income $120,000 (68.000) 52,000 (39.000 Use the following to answer questions 11 and 12: Nala Company is a small one-person company that provides elaborate and imaginative we cakes to order for very large wedding receptions. The owner of the company would like to understand the cost structure of the company and has compiled the following records of ac and costs incurred. The owner believes that the number of weddings catered is the best me of activity. Weddings Total Costs anuary February ncurr $3,800 $3,600

Explanation / Answer

Answer 6.

Sales = $120,000
Number of units sold = 4,000 units

Selling Price = $120,000 / 4,000
Selling Price = $30

Variable Expenses = $68,000

Variable Expenses per unit = $68,000 / 4,000
Variable Expenses per unit = $17

Contribution Margin per unit = Selling Price - Variable Expenses per unit
Contribution Margin per unit = $30 - $17
Contribution Margin per unit = $13

Break-even Point in units = Fixed Expenses / Contribution Margin per unit
Break-even Point in units = $39,000 / $13
Break-even Point in units = 3,000

Answer 7.

Margin of Safety in units = Number of units sold - Break-even Point in units
Margin of Safety in units = 4,000 - 3,000
Margin of Safety in units = 1,000

Answer 8.

Degree of Operating Leverage = Contribution Margin / Operating Income
Degree of Operating Leverage = $52,000 / $13,000
Degree of Operating Leverage = 4

Answer 9.

Sales = $240,000
Selling Price = $30

Number of units sold = $240,000 / $30
Number of units sold = 8,000

Variable Expenses = 8,000 * $17
Variable Expenses = $136,000

Answer 10.

Contribution Margin Ratio = Contribution Margin / Sales
Contribution Margin Ratio = $52,000 / $120,000
Contribution Margin Ratio = 0.4333

Required Sales Volume = (Fixed Expenses + Desired Profit) / Contribution Margin Ratio
Required Sales Volume = ($39,000 + $26,000) / 0.4333
Required Sales Volume = $65,000 / 0.4333
Required Sales Volume = 150,000

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