Desired profit is $5,400 [The following information applies to the questions dis
ID: 2431957 • Letter: D
Question
Desired profit is $5,400
[The following information applies to the questions displayed below] Munoz Company makes and sells products with variable costs of $51 each. Munoz incurs annual fixed costs of $32,400. The current sales price is $69. f. If variable cost rises to $49 per unit, what level of sales is required to earn the desired profit? Express your answer in units and dollars. Prepare an income statement using the contribution margin format. Complete this question by entering your answers in the tabs below. Required F1 Required F2 If variable cost rises to $49 per unit, what level of sales is required to earn the desired profit? Express your answer in units and dollars. Sales volume in units Sales volume in dollarsExplanation / Answer
f)1) Level of sales to earn the same desired profit( see working note)
Sale volume in units
1890 units
Sale volume in dollars
$ 1,30,410
Working Notes:
Desired profit to be maintained------$ 5400
Add: Fixed Costs---------------------------$32,400
Therefore required contribution------$ 37,800
Given contribution /unit=(Selling price/unit-Variable cost/unit)=$ 20/unit
Numberof units required are: $ 37800/$20= 1890 units
Sales in dollars= 1890* $69 per unit=$ 130410
f) 2) Income Staytement using Contribution margin format
MUNOZ COMPANY
Income Statement
Selling Price per unit( $ 69/unit* 1890 units)
$ 130410
Less: Variable Costs($ 49/unit*1890 units)
( $ 92610)
Contribution
$ 37,800
Less: Fixed Costs
($32400)
Net Income
$ 5400
g)
Margin of safety in units
438 units
Margin of safety in dollars
$ 28,470
Margin of safety
23.68%
%
Working Note:
1)Computation of income statement
Selling price/unit--------------------$65
Less: Variable Cost/unit-----------($49)
Contribution/unit--------------------$ 16
Number of units------------------------1850
Total Contribution---------------------$ 29,600
Less: Fixed Costs------------------------$ 22600
Profit--------------------------------------$ 7000
2)Calculation of Margin of Safety(MOS)
MOS= Actual Sales- Break Even Sales
Break Even Sales= Fixed Costs/Contribution per unit=1412.5
MOS=1850 units-1412.5 units=437.5 units approx= 438 units
MOS in dollars=438 units* 65/unit=$ 28,470
MOS as apercentage of Actual sales= 438*100/1850=23.68%
Sale volume in units
1890 units
Sale volume in dollars
$ 1,30,410
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