Quizzol

QUESTION:

Drives minus n minus More

Manufacturing manufactures 256GB SD cards (memory cards for mobile phones, digital cameras, and other devices). Price and cost data for a relevant range extending to 200,000 units per month are as follows:

Sales price per unit

(current monthly sales volume is 120,000 units). . . .

$20.00

Variable costs per unit:

Direct materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$7.40

Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$5.00

Variable manufacturing overhead. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2.20

Variable selling and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . .

$1.40

Monthly fixed expenses:

Fixed manufacturing overhead. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$191,400

Fixed selling and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . .

$276,600

What is the company's contribution margin per unit? Contribution margin percentage? Total contribution margin?

What would the company's monthly operating income be if the company sold

150 comma 000

units?

What would the company's monthly operating income be if the company had sales of

$ 4 comma 500 comma 000?

What is the breakeven point in units? In sales dollars?

How many units would the company have to sell to earn a target monthly profit of

$ 260 comma 000?

Management is currently in contract negotiations with the labor union. If the negotiations fail, direct labor costs will increase by

10%,

and fixed costs will increase by

$ 22 comma 500

per month. If these costs increase, how many units will the company have to sell each month to break even?

Return to the original data for this question and the rest of the questions. What is the company's current operating leverage factor (round to two decimals)?

If sales volume increases by

8%,

by what percentage will operating income increase?

What is the company's current margin of safety in sales dollars? What is its margin of safety as a percentage of sales?

10.

Say the company adds a second size of SD card (512GB in addition to 256GB). A 512GB SD card will sell for

$ 45

and have variable cost per unit of

$ 20

per unit. The expected sales mix is

three

of the 256GB SD cards for every one of the 512GB SD cards. Given this sales mix, how many of each type of SD card will the company need to sell to reach its target monthly profit of

$ 260 comma 000?

Is this volume higher or lower than previously needed (in Requirement 5) to achieve the same target profit? Why?

ANSWER:

Requirement 1. What is the company's contribution margin per unit? Contribution margin percentage? Total contribution margin?

Begin by identifying the formula.

	Sales price per unit	–	Variable cost per unit	=	Contribution margin per unit

The contribution margin per unit is	$4.00	.

What is the company's contribution margin percentage?

Begin by identifying the formula.

(	Contribution margin per unit	÷	Sales price per unit	) =	Contribution margin percentage

(Round your answer to the nearest whole percent.)

The contribution margin percentage is	20	%.

What is the company's total contribution margin?

Begin by identifying the formula.

	Sales revenue	–	Variable expenses	=	Contribution margin

The total contribution margin is	$480,000	.

Requirement 2. What would the company's monthly operating income be if the company sold

150 comma 000

units?

Use the following table to compute the operating income if

150 comma 000

units are sold.

Sales volume (units)		150,000
Unit contribution margin		$4.00
Contribution margin		$600,000
Less:	Fixed expenses	468,000
Operating income		$132,000

Requirement 3. What would the company's monthly operating income be if the company had sales of

$ 4 comma 500 comma 000?

Use the following table to compute the operating income with sales totaling

$ 4 comma 500 comma 000.

(Enter the contribution margin ratio to the nearest whole percent.)

Sales revenue		$4,500,000
Contribution margin ratio		20	%
Contribution margin		$900,000
Less:	Fixed expenses	468,000
Operating income		$432,000

Requirement 4. What is the breakeven point in units? In sales dollars?

Begin by identifying the formula.

(	Fixed expenses	+	Operating income	) ÷	Contribution margin per unit	=	Breakeven sales in units

(Round the breakeven point in units up to the nearest whole unit.)

The company's breakeven point is	117,000	units.

What is the breakeven point in sales dollars?

Begin by identifying the formula.

(	Fixed expenses	+	Operating income	) ÷	Contribution margin ratio	=	Breakeven sales in dollars

(Round the breakeven point in sales dollars up to the nearest whole dollar.)

The breakeven point in dollars is	$2,340,000	.

Requirement 5. How many units would the company have to sell to earn a target monthly profit of

$ 260 comma 000?

Begin by identifying the formula.

(	Fixed expenses	+	Operating income	) ÷	Contribution margin per unit	=	Target sales in units

(Round your answer up to the nearest whole unit.)

In order to earn a monthly profit of $260,000, the company must sell	182,000	units.

Requirement 6. Management is currently in contract negotiations with the labor union. If the negotiations fail, direct labor costs will increase by

10%,

and fixed costs will increase by

$ 22 comma 500

per month. If these costs increase, how many units will the company have to sell each month to break even? (Round your answer up to the nearest whole number.)

The new breakeven point is	140,143	units.

Requirement 7. Return to the original data for this question and the rest of the questions. What is the company's current operating leverage factor (round to two decimals)?

Begin by identifying the formula.

	Contribution margin	÷	Operating income	=	Operating leverage factor

(Round your answer to two decimal places.)

The operating leverage factor is	40.00	.

Requirement 8. If sales volume increases by

8%,

by what percentage will operating income increase? (Round the percentage to one decimal place.)

The operating income will increase by	320.0	%.

Requirement 9. What is the company's current margin of safety in sales dollars? What is its margin of safety as a percentage of sales?

Begin by identifying the formula.

	Sales	-	Breakeven sales in dollars	=	Margin of safety in dollars

The current margin of safety in sales dollars is	$60,000	.

What is its margin of safety as a percentage of sales?

Begin by identifying the formula.

	Margin of safety in dollars	÷	Sales	=	Margin of safety percentage

(Round the percentage to the nearest whole percent.)

The margin of safety as a percentage of sales is	3	% .

Requirement 10. Say the company adds a second size of SD card (512GB in addition to 256GB). A 512GB SD card will sell for

$ 45

and have variable cost per unit of

$ 20

per unit. The expected sales mix is

three

of the 256GB SD cards for every one of the 512GB SD cards. Given this sales mix, how many of each type of SD card will the company need to sell to reach its target monthly profit of

$ 260 comma 000?

Is this volume higher or lower than previously needed (in Requirement 5) to achieve the same target profit? Why?

Begin by computing the weighted-average contribution margin per unit. (Round all amounts to the nearest cent, $X.XX.)

		256 GB	512 GB	Total
Sales price per unit		$20.00	$45.00
Less:	Variable cost per unit	16.00	20.00
Contribution margin per unit		$4.00	$25.00
Sales mix		3	1	4
Contribution margin		$12.00	$25.00	$37.00
Weighted average contribution margin per unit				$9.25

Given this sales mix, how many of each type of SD card will the company need to sell to reach its target monthly profit of

$ 260 comma 000?

(Round new target sales in units up to the next whole unit. Round units of the 256GB SD cards and 512GB SD cards to the nearest whole unit.)

The new target sales in units is			78,703	. The company will need to sell	59,027	units of the 256GB SD cards
and	19,676	units of the 512GB SD cards.

Is this volume higher or lower than previously needed (in Question 5) to achieve the same target profit? Why?

The target sales is

before because now the company is selling a product with

unit contribution margin

Posted by Cleveland on September 29, 2024

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