Simplex Corporation, manufactures and sells a single product. It is in the proce

Question

Simplex Corporation, manufactures and sells a single product. It is in the process of developing a master budget for the first quarter of 2018. Expectations are that variable expenses will be 60% of sales and fixed expenses will be $11,000 per month. The following information will also be used in developing the company's budget for the first three months of 2018:

Three months Jan. Feb. Mar.

Total Units sold 1,200 1,500 1,800

Selling price $25 $27 $28

Required:

(a) Prepare a budgeted contribution income statement for each of the first three months of 2018 as well as the three-month period in total. Also prepare a schedule showing the contribution margin per unit, the contribution margin ratio, the break-even point in sales dollars, the margin of safety, and the degree of operating leverage for each month and for the three-month period in total.

(b) Refer to the original data. Prepare another set of income statements and schedules assuming that unit sales increase by 5% over previously budgeted amounts (Jan. through March). Round to the nearest dollar.

(c) Refer to the original data. Prepare another set of income statements and schedules assuming that variable expenses, instead of being 60% of sales are 65% of sales.

(d) Refer to the original data. Assume that fixed and variable expenses remain unchanged, prepare another set of income statements and schedules assuming that the original selling prices increase by 15% per unit. Round to the nearest dollar.

Explanation / Answer

Solution a Jan Feb Mar Total Units Sold            1,200            1,500            1,800         4,500 Selling price                  25                  27                  28 Selling price          30,000          40,500          50,400    120,900 Variable expense-60%       (18,000)       (24,300)       (30,240)    (72,540) Contribution          12,000          16,200          20,160      48,360 Fixed expense       (11,000)       (11,000)       (11,000)    (33,000) Income            1,000            5,200            9,160      15,360 Contribution          12,000          16,200          20,160 Units            1,200            1,500            1,800 Contribution per unit            10.00            10.80            11.20 Contribution ratio 40.00% 40.00% 40.00% Break even=Fixed expense/contribution per unit            1,100            1,019                982 Margin of safety-(Sold units-Break even sale)*Contribution per unit            1,000            5,200            9,160 Operating leverege=Contribution margin/Net income          12.000            3.115            2.201         3.148 Solution b Units Sold            1,260            1,575            1,890         4,725 Selling price                  25                  27                  28 Selling price          31,500          42,525          52,920    126,945 Variable expense-60%       (18,900)       (25,515)       (31,752)    (76,167) Contribution          12,600          17,010          21,168      50,778 Fixed expense       (11,000)       (11,000)       (11,000)    (33,000) Income            1,600            6,010          10,168      17,778 Contribution          12,600          17,010          21,168 Units            1,260            1,575            1,890 Contribution per unit            10.00            10.80            11.20 Contribution ratio 40.00% 40.00% 40.00% Break even=Fixed expense/contribution per unit            1,100            1,019                982 Margin of safety-(Sold units-Break even sale)*Contribution per unit            1,600            6,010          10,168 Operating leverege=Contribution margin/Net income            7.875            2.830            2.082         2.856 Solution C Jan Feb Mar Total Units Sold            1,200            1,500            1,800         4,500 Selling price                  25                  27                  28 Selling price          30,000          40,500          50,400    120,900 Variable expense-65%       (19,500)       (26,325)       (32,760)    (78,585) Contribution          10,500          14,175          17,640      42,315 Fixed expense       (11,000)       (11,000)       (11,000)    (33,000) Income             (500)            3,175            6,640         9,315 Contribution          10,500          14,175          17,640 Units            1,200            1,500            1,800 Contribution per unit              8.75              9.45              9.80 Contribution ratio 35.00% 35.00% 35.00% Break even=Fixed expense/contribution per unit            1,257            1,164            1,122 Margin of safety-(Sold units-Break even sale)*Contribution per unit             (500)            3,175            6,640 Operating leverege=Contribution margin/Net income       (21.000)            4.465            2.657         4.543 Solution D Jan Feb Mar Total Units Sold            1,200            1,500            1,800         4,500 Selling price            28.75            31.05            32.20 Selling price          34,500          46,575          57,960    139,035 Variable expense-60%       (20,700)       (27,945)       (34,776)    (83,421) Contribution          13,800          18,630          23,184      55,614 Fixed expense       (11,000)       (11,000)       (11,000)    (33,000) Income            2,800            7,630          12,184      22,614 Contribution          13,800          18,630          23,184 Units            1,200            1,500            1,800 Contribution per unit            11.50            12.42            12.88 Contribution ratio 40.00% 40.00% 40.00% Break even=Fixed expense/contribution per unit                957                886                854 Margin of safety-(Sold units-Break even sale)*Contribution per unit            2,800            7,630          12,184 Operating leverege=Contribution margin/Net income            4.929            2.442            1.903         2.459

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