The LOLA\'S store presents the following information related to your income and

Question

The LOLA'S store presents the following information related to your income and costs:

Sales Price .............................. $ 42

Invoice costs ........................... 22

Sales commissions ............... .. 6

Shipping .................................. 4

Advertising ........................... $ 60,000

Rent .................................... .. 30,000

Salaries .............................. .. 150,000

Requirements: 1. Calculate the "Break Even Point" in dollars and units

2. What would be the operational result if the company sells 30,000 units and sells 22,000? Prepare a Contribution income Statement

3. If the management wants to earn $ 225,000, how much do you have to sell in units and dollars?

4. If the management decides to increase the commissions to $ 3 more, what would be the new BEP?

5. If management decides to eliminate commissions and increase salaries to $ 230,000, what would be the new BEP.

6. If management decides to increase the price to $ 45, raise the variable costs to $ 36, the fixed costs increase to $ 260,000 in total. This strategy projects to earn $ 300,000. How many units should you sell ?????

7. With the original data, determine the Degree of Operating Leverage in dollars and percent.

Explanation / Answer

Variable cost per unit = 22+6+4 = $32

Fixed cost = 60000+30000+150000 = $240000

1) Break even point in units = 240000/(42-32) = 24000 Units

Break even point (dollars) = 24000*42 = $1008000

2) Contribution format income statement :

3) Desired unit sale = (240000+225000)/10 = 46500 Units

Desired dollar sale = 46500*42 = $1953000

4) New variable cost per unit = 32+3 = 35

Break even point = 240000/(42-35) = 34286 Units

Note : As per chegg policy only 4 subparts can be answered in one time. So please next parts post as individual question

30000 Units 22000 Units Sales 1260000 924000 Variable cost -960000 -704000 Contribution margin 300000 220000 Fixed cost -240000 -240000 Operating income 60000 -20000

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