Madison Company produces a single product which sells for 30

Madison Company produces a single product which sells for $30 per unit. Fixed expenses total $13,500 per month, and variable expenses are $12 per unit. During the current month, sales, in units, totaled 900 units.

Using the information above, match each of the items listed below with the appropriate amount.

Contribution margin per unit.

Contribution margin ratio.

Break-even point in units.

Break-even point in dollars.

Total contribution margin at the break-even point.

Net income during the current month.

Margin of safety during the current month.

Margin of safety rate during the current month.

Operating leverage during the current month.

Sales, in units, needed for a target profit of $3,600.

Sales, in dollars, needed for a target profit of $4,500.

If sales next month increase by 15%, what will be the net income?

6.0

16.7%

$30,000

60.0%

950 Units

$4,500

750 Units

$18

$22,500

$2,700

$13,500

$5,130

- Contribution margin per unit.       -    Contribution margin ratio.       -    Break-even point in units.       - Break-even point in dollars.       - Total contribution margin at the break-even point.       -    Net income during the current month.       - Margin of safety during the current month.       -    Margin of safety rate during the current month.       -    Operating leverage during the current month.       - Sales, in units, needed for a target profit of $3,600.       -    Sales, in dollars, needed for a target profit of $4,500.       - If sales next month increase by 15%, what will be the net income?

A. 6.0 B. 16.7% C. $30,000 D. 60.0% E. 950 Units F. $4,500 G. 750 Units H. $18 I. $22,500 J. $2,700 K. $13,500 L. $5,130

Solution

Per unit 900 units Break even point (750 units)

a. Sales / revenue $30 $27,000 (900 units X $30) $22,500 (750units X $30)

b. Variable cost $12 $10,800 (900 units X $12) $9000 (750 units X $12)

c. Continution margin (a-b) $18 $16,200    $13,500

d. Contibution ratio (c/a) 60% 60%

e. Fixed Cost $13,500

f. Net profit/Income (c-e) $2,700   

g. Break Even Point (e/c) 750 units

(Fixed cost / Contribution per unit)

h. Break even point in dollars $22,500

(750 units X $30)

i. margin of safety (a-h) $4,500

(Actual sales - BEP)

(Actual sales - BEP sales)

j. Margin of safety rate

k. Operating leverage (c/f) 6 times

(Contibution / net income)

l. Required sales to get profit of $3,600 =(Fixed cost + $3,600) / Contribution per unit) =  950 units

m. Required sales to get profit of $4,500 = [(Fixed cost + $4,500) / Contribution per unit] X$30 = $30,000

n. If sales increases by 15%, then net income = (Actual net profit + increase in net profit) :   

Increase in Net profit X (Sales incerease X Degree of operating leverage) = $2,700 X (15% X 6) = $2,430

There for at at sales which is increased by 15% = $2,700 + $2,430 = $5,130

Answer:

Contribution margin per unit - H.$18

Contribution margin ratio. - D 60%

Break-even point in units. - G. 750 units

Break-even point in dollars. - I. $22,500

Total contribution margin at the break-even point - K. $13,500

Net income during the current month. - J. $2,700

Margin of safety during the current month. F. $4,500

Margin of safety rate during the current month. - B 16.7%

Operating leverage during the current month. -A. 6.0

Sales, in units, needed for a target profit of $3,600. - E. 950 units

Sales, in dollars, needed for a target profit of $4,500. - C$30,000

If sales next month increase by 15%, what will be the net income? - L $5,130