15-39; 1-6 Exercise 15-39 Break-Even Units, Contribution Margin Ratio, Multiple-

Question

15-39; 1-6
Exercise 15-39 Break-Even Units, Contribution Margin Ratio, Multiple-Product Breakeven, Margin of Safety, Degree of Operating Leverage Jellico Inc.'s projected operating income (based on sales of 450,000 units) for the coming year OBJ is as follows: Total $11,700,000 Sales Total variable cost 8,190,000 Contribution margin $ 3,510,000 2,254,200 $ 1,255,800 Total fixed cost 2 Operating income Required: Compute: (a) variable cost per unit, (b) contribution margin per unit, (c) contribution n ratio, (d) break-even point in units, and (e) break-even point in sales dollars. margi 2. How many units must be sold to earn o 3. Compute the additional operating income that Jellico would earn if sales were $50,000 2 perating income of $296,400 more than expected. 4. For the projected level of sales, compute the margin of safety in units, and then in sales dollars. 5. Compute the degree of operating leverage. (Note: Round answer to two decimal places.) 6. Compute the new operating income if sales are 10 percent higher than expected. 6

Explanation / Answer

1 a Total Variable Cost per unit = Total variable Cost Total Units = $8190000/450000Units = $                                                                          18.20 Per Unit b contribution Margin per Unit = Total Contribution Margin Total Units = $3510000/450000 = $                                                                             7.80 Per Unit or sales Price per unit - Variable cost per unit ($11700000/450000units)-$18.20 $                                                                             7.80 Per unit c Contribution margin ratio = Sales - Variable expenses Sales = $11700000-$ 8190000 $11,700,000 = 0.3 = 30% d Break Even Points in Units= Fixed expenses Unit contribution margin = $2,254,200 $7.80 per unit = 289000 Units e Break Even Points in sales doller = Fixed expenses CM ratio = $2,254,200 30% = $                                                                  7,514,000 2 Home many units must be sold to get operating income of $ 296400 Fixed Expenses + Operating income contributon Margin per Unit Total Sales In units = 327000 sales = 327000 Units*$26/- 8502000 Varriable Cost $                                                            5,951,400.00 Contribution $                                                            2,550,600.00 Fixed Cost $2,254,200 Operating income $296,400 3 Additional operating Income when Sales exceeds by $50000 Additional Sales X Contribution Margin ration $50000 X 30% $                                                                  15,000.00 4 Margin of safty in units= Actual Sales - BEP sales sales Price Per unit = $11700000-$7514000 $26 = 161000 Units Margin of safty in Dollars= Actual Sales - BEP sales = $1170000-$7514000 = $                                                                  4,186,000 5 Operating Leverage = contribution margin operating income = $3,510,000 $1,255,800 = 2.80 6 If sales are 10% higher than expected then new operating Income = sales 12870000 Varriable Cost $                                                            9,009,000.00 Contribution $                                                            3,861,000.00 Fixed Cost $2,254,200 Operating income $1,606,800

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