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.
Read the requirements
LOADING...
.Requirement 1. Compute the number of cartons of calendars that
College TeamCollege Team
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.
Enter any number in the edit fields and then click Check Answer.
9
parts remaining
Clear All
Check Answer
Requirements
1.
College TeamCollege Team
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%
PrintDone
Expert Answer
Was this answer helpful?
0
0
318 answers
= contribution margin/operating income
=20.69%
Requirement 5. By what percentage will operating income change if July\'s sales volume is
1616%
higher? Prove your answer. (Round the percentage to two decimal places.)
If volume increases 16%, then operating income will increase
20.69
%.
Prove your answer. (Round the percentage to two decimal places.)
Original volume (cartons)
Add: Increase in volume
New volume (cartons)
Multiplied by: Unit contribution margin
New total contribution margin
Less: Fixed expenses
New operating income
vs. Operating income before change in volume
Increase in operating income
Percentage change
%
| Sales revenue | - | Variable expenses | - | Fixed expenses | = | Operating income |
Solution
All the answers posted are correct and complete.
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
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
Less: Fixed Expenses
1,065,000
$3635000
Operating Income
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%
| 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 | ||||||
| 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 | |||||
| Less: Fixed Expenses | 1,065,000 $3635000 | |||||
| Operating Income 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% | |||||
