Miler Metal Co makes a single product that sells for 42 5 pe

Miler Metal Co. makes a single product that sells for $42 5 per unit. Variable costs are $27.8 per unit and fxed costs total $65,430 per month. Required a. Caliculate the number of units that must be sold each month for the fim to break-even. (Do not round intermediate calculations.) 4451units b. Assume current sales are $417,000 Calculale the margin of safety and the margin of safety ratio. Round intermediate caiculations to the nearest whole number) Margin of safety Margin of safety ratio S 227,833 551% / c. Calculate operating income if 5.900 unis are sold in a month (Do not round intermediate calculations aling income 21.300 d. Calculate operating income if the seling price is raised to 345 5 per unit, advertising expenditures are increased by $7,000 per month, and monthty unit saies volume becomes 6,500 units. (Do not round intermediate caiculations.) e. Assume that the firm adds another product to its product line and that the new product sells for $24 per unit, has variable costs of $13 per une, and causes fxed expenses in total to increase to $81,000 per month. Cakcuiane the trm\'s operating income i 5,900 unts of the original product and 4 400 unts or he new product are sold each month. For the oniginal product, use the seling price and variable cost data gven in the problem statement (Do not round intermediate calculations.) t. Calculate the fem\'s operating income it 3.800 units of the original product and 6,500 units of the new product are sold each month (Do not round intermediate calculations.)

Solution

Answer to Part a.

Break Even Volume = Fixed Cost / Contribution Margin per Unit
Contribution Margin per Unit = Selling Price per Unit – Variable Cost per Unit
Contribution Margin per Unit = $42.50 - $27.80
Contribution Margin per Unit = $14.70

Break Even Volume = 65,430 / 14.70
Break Even Volume = 4,451 Units

Answer to Part b.

Margin of Safety = Current Sales – Break Even Sales
Break Even Sales = Break Even Volume * Selling Price per Unit
Break Even Sales = 4,451 * $42.50
Break Even Sales = $189,168

Margin of Safety = $417,000 - $189,168
Margin of Safety = $227,832

Margin of Safety Ratio = Margin of Safety / Current Sales * 100
Margin of Safety Ratio = 227,832 / 417,000 * 100
Margin of Safety Ratio = 54.64%

Answer to Part c.

Operating Income = Contribution Margin – Fixed Expense
Operating Income = ($14.70 * 5,900) - $65,430
Operating Income = $86,730 - $65,430
Operating Income = $21,300

Answer to Part d.

Expected Selling Price per Unit = $45.50
Expected Contribution Margin per Unit = $45.50 - $27.80
Expected Contribution Margin per Unit = $17.70

Expected Fixed Cost = $65,430 + $7,000 = $72,430

Expected Sales = 6,500 Units

Operating Income = Contribution Margin – Fixed Expense
Operating Income = (6,500 * $17.70) - $72,430
Operating Income = $115,050 - $72,430
Operating Income = $42,620

Answer to Part e.

Contribution Margin on Original Product = ($14.70 * 5,900)
Contribution Margin on Original Product = $86,730

Contribution Margin per unit on New Product = $24 - $13 = $11
Contribution Margin on New Product = ($11 * 4,400)
Contribution Margin on New Product = $48,400

Firms’ Net Operating Income = Total Contribution Margin – Fixed Cost
Firms’ Net Operating Income = ($86,730 + $48,400) - $81,000
Firms’ Net Operating Income = $135,130 - $81,000
Firms’ Net Operating Income = $54,130

Answer to Part f.

Contribution Margin on Original Product = ($14.70 * 3,800)
Contribution Margin on Original Product = $55,860

Contribution Margin per unit on New Product = $24 - $13 = $11
Contribution Margin on New Product = ($11 * 6,500)
Contribution Margin on New Product = $71,500

Firms’ Net Operating Income = Total Contribution Margin – Fixed Cost
Firms’ Net Operating Income = ($55,860 + $71,500) - $81,000
Firms’ Net Operating Income = $127,360 - $81,000
Firms’ Net Operating Income = $46,360