Homework Soursecollege TeamCollege Team Calendars imprints calendars with c
college TeamCollege Team
Calendars imprints calendars with college names. The company has fixed expenses of
$1,065,000
each month plus variable expenses of
$3.50
per carton of calendars. Of the variable expense,
66%
is cost of goods sold, while the remaining 34%
relates to variable operating expenses. The company sells each carton of calendars for
$ 13.50$13.50.
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.Requirement 1. Compute the number of cartons of calendars that
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Calendars must sell each month to breakeven.
Begin by determining the basic income statement equation.
Sales revenue
-
Variable expenses
-
Fixed expenses
=
Operating income
Using the basic income statement equation you determined above solve for the number of cartons to break even.
The breakeven sales is
cartons.
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Requirements
1.
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2.
3.
4.
What is June\'s margin of safety (in dollars)? What is the operating leverage factor at this level of sales?
5.
16%
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| |
Solution
= contribution margin/operating income
| Selling price per Carton | $ 13.50 | per Carton | |
| Variable expenses per Carton | $ 3.50 | per Carton | |
| Fixed expenses | $ 10,65,000 | ||
| Requirement 1 | |||
| Break even sales (In cartons) | |||
| Selling price per Carton | $ 13.50 | per Carton | |
| Variable expenses per Carton | $ 3.50 | per Carton | |
| Contribution Margin per Carton | $ 10.00 | per Carton | |
| Break even in unit sales = | Fixed expenses/ contribution per unit | ||
| = 1,065,000/$10 | |||
| =106,500 cartons | |||
| Basic Income Equation for Break even Sales | |||
| Sales Revenue | - Variable expenses | - Fixed Expenses | = Operating Income |
| 1,437,750 | 372,750 | 1,065,000 | - |
| Requirement 2 | |||
| Dollar amount of monthly sales that the company needs in order to earn $304,000 in operating income | |||
| CM ratio = Contribution margin/Sales X 100 | |||
| = $10/13.50 X 100 | |||
| = 74.07 % | |||
| Particulars | Calculation | Amount ($) | |
| Desired Profit | 304,000 | ||
| Add: Fixed Expenses | 1,065,000 | ||
| Desired Contribution | 1,369,000 | ||
| Desired Sales | (1,369,000/74.07%) | 1.848,252 | (Desired Sales/ CM ratio) |
| Requirement 3 | |||
| The company\'s contribution margin income statement for June for sales of 470,000 cartons of calendars | |||
| Particulars | Calculation | Amount ($) | |
| Sales | 470,000 X13.5 | 6,345,000 | |
| Variable expenses | 470,000 X3.5 | 1,645,000 | |
| Contribution Margin income | $ 4,700,000 | ||
| Requirement 4a | |||
| 3.June the margin of safety | |||
| margin of safety in dollar = | Actual sales - Break even sales | ||
| = 6,345,000-1,437,750 | |||
| margin of safety in dollars | = 4,907,250 | ||
| Requirement 4b | |||
| 4. Compute the operating leverage factor at this level of sales | |||
| Sales | 6,345,000 | ||
| Varaible expenses | 1,645,000 | ||
| Contribution margin | 4,700,000 | ||
| Fixed Expenses | 1,065,000 | ||
| Operating income | 3,635,000 | ||
| Operating leverage factor | = contribution margin/operating income | ||
| =4,700,000/3,635,000 | |||
| = 1.29 | |||
| Requirement 5 | |||
| Percentage will operating income change, if July\'s sales volume is 16% higher | |||
| July\'s Sales Volume | =470,000 X116% | =545,200 Cartons | |
| Sales | 545,200 X13.5 | 7,360,200 | |
| Varaible expenses | 545,200 X3.5 | 1,908,200 | |
| Contribution margin | 5,452,000 | ||
| Fixed Expenses | 1,065,000 | ||
| Operating income | 4,387,000 | ||
| Increase In Operating income | =4,387,000-3,635,000 | ||
| =752,000 | |||
| Percentage of change in operating income | = 752,000/3,635,000 X100 | ||
| =20.69% |
