Golding Company has decided to offer two types of computers: All-in-One desktops

Question

Golding Company has decided to offer two types of computers: All-in-One desktops and Laptops. Golding provided the following unit data for each product: All-in-One Laptop Price $640 $400 Unit Variable Cost $520 $304 Projected Sales (units) 2,000 1,000 Complete the table below to obtain the company’s projected income statement (for both products) for the coming year. All-in-One Laptop Total Sales Total variable cost Contribution margin Direct fixed cost 60,000 28,000 88,000 Product margin Common fixed cost 46,400 Operating income Sales Dollars Break-Even Approach Calculate the contribution margin ratio for Golding (round to four decimal places): Calculate the total fixed cost: Calculate the break-even point in sales dollars (round to the nearest dollar): Units Sold Break-Even Approach Calculate the sales mix with the lowest whole numbers: All-in-One: Laptop: Complete the following table: Product Price Unit Variable Cost Unit Contribution Margin Sales Mix (lowest whole numbers) Package Contribution Margin All-in-One $640 $520 Laptop 400 304 Package total Calculate the number of packages that must be sold to break-even: packages Calculate the units of each product needed to break-even (round to the nearest whole unit): All-in-One: units Laptop: units Target Income Units Calculate the number of packages that must be sold to earn an operating income of $268,800: packages Calculate the units of each product needed to earn an operating income of $268,800: All-in-One: units Laptop: units Margin of Safety Calculate the margin of safety in dollars for Golding: Calculate the margin of safety in units: All-in-one: units Laptop: units Degree of operating Leverage Calculate the degree of operating leverage (round to four decimal places): Calculate the percentage change in operating income if sales increase by 30% (round to two decimal places):

Explanation / Answer

Contribution margin income statement:

Contribution margin ratio of Goding = 336,000 / 1,680,000 x 100 = 20%

Total fixed costs = 88,000 + 46,400 = $ 134,400

Breakeven point = Total fixed costs / Contribution margin ratio = $ 134,400 / 20% = $ 672,000

Let the number of laptops be q and all-in-one be 2q. At break-even point, total contribution magin equals total fixed cost.

120x2q + 96q = 134,400

q = 400

Therefore sales mix for break-even is 400 units of laptops and 800 units of all-in-one desktops.

All-in-one desktop Laptop Selling price per unit $ 640 $ 400 Variable cost per unit 520    304 Contribution margin per unit 120 96 Number of units sold 2,000 1,000 Total contribution magin 240,000 96,000 336,000 Less Fixed costs 60,000 28,000 88,000 Product margin 180,000 68,000 248,000 Common fixed costs 46,400 Operating income 201,600

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