Chapter 3 Problem 2 Your Company Traditional Income Statement Any Year 3,500 4,5

Question

Chapter 3 Problem 2 Your Company Traditional Income Statement Any Year 3,500 4,500 6000 27.000 21,000 Units produced and sold 350,000 450,000 600,000 700,000 Sales @$100 per unit 2,100,000 140,000 180,000 240,000 280,000 840,000 Cost of goods sold 270,000 360,000 420,000 1.260,000 210,000 Gross margin Operating expenses: 150,000 150,000 150,000 600,000 150,000 Salaries 21,000 27000 36000 42,000 I 126,000 Commissions Delivery 21,500 26 500 34,000 E90,000 121,000 12,000 12,000 12,000 48,000 Depreciation 12,000 7500 7.500 17,500 7,500 30,000 Insurance Taxes 000 000 4,0000 4,000 16,000 Utilities 9,000 11.000 14,000 16,000 50,000 3800 4800 6300 2,300 22 200 Office supplies Other 8,500 10,500 13,500 15,500 48,000 277,300 Total operating expenses 293,300 1,061,200 237,300 16700 82,700 (27,300) 126,700 198,800 Operating income Instructions: I 1. Using the above information prepare an income statement in the contribution format. 2. Compute the a. contrubution margin per unit b. contribution margin ratio .breakeven point in units and dollars- show your formulas d. degree of operating leverage e. margin of safety as a percent and in dollars dollar sales and units required to increase operating income I by 25%. .from your answer in item d. What would be the result of a 5% I Decrease in Sales; a 5% increase in sales

Explanation / Answer

Contribution Margin Income Statement QTR1 QTR2 QTR3 QTR4 Total No of Units Sold 3500 4500 6000 7000 21000 Sales 350000 450000 600000 700000 2100000 Less: Cost of Goods Sold 140000 180000 240000 280000 840000 Gross Contribution Margin 210000 270000 360000 420000 1260000 Less: Variable marketing and adminstration expenses Commission 21000 27000 36000 42000 126000 Delivery 21500 26500 34000 39000 121000 Utilities 9000 11000 14000 16000 50000 Contribution Margin 158500 205500 276000 323000 963000 Less: Fixed Expenses Salaries 150000 150000 150000 150000 600000 Depreciation 12000 12000 12000 12000 48000 Insurance 7500 7500 7500 7500 30000 Taxes 4000 4000 4000 4000 16000 Office Supplies 3800 4800 6300 7300 22200 Other 8500 10500 13500 15500 48000 Total Fixed Expenses 185800 188800 193300 196300 764200 Net Income -27300 16700 82700 126700 198800 2 (a) Contribution Margin Per Unit = 45.29 45.67 46.00 46.14 45.86 (Contribution/ No of Units Sold) (b) Contribution Margin Ratio = (Contribution / Sales*100) 45.29 45.67 46.00 46.14 45.86 © Break even Point            in Units (Fixed cost/ Contribution Margin Per Unit) 4102.84 4134.31 4202.17 4254.18 16664.80            in Dollars (Fixed cost/ Contribution Margin ratio) 410284 413431 420217 425418 1666480 e Margin of Safety            as a Percent (Profit/ Contribution Margin Ratio (or) PV Ratio) -6.03 3.66 17.98 27.46 43.35            In dollars (Profit/ Contribution Margin Per Unit (or) PV Ratio) -602.84 365.69 1797.83 2745.82 4335.20 f. Dollars / sales required to increase operating        Income by 25% Net Profit -27300 16700 82700 126700 198800 Add: Desired Profit 6825 4175 20675 31675 49700 Total desired profit -20475 20875 103375 158375 248500 Add : Fixed Cost 185800 188800 193300 196300 764200 Total Required Contribution 165325 209675 296675 354675 1012700 Required Sales in Dollars (Contribution / Contribution margin Ratio) 365071 459142 644946 768646 2208380 Required Sales in units (Contribution / Contribution margin Ratio Per Unit) 3651 4591 6449 7686 22084 d Degree of Operating Leverage (sales-variable cost/ (sales-variable cost-fixed cost) -5.81 12.31 3.34 2.55 4.84 Part-a : If sales decrease by 5% then Decrease of                      Operating Leverage -29.03 61.53 16.69 12.75 24.22 Part-b : If sales decrease by 5% then Increase of                      Operating Leverage -29.03 61.53 16.69 12.75 24.22

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