Need help with part b and part IV PART III Cost-Volume- Profit Analysis (15 Poin

ID: 2467530 • Letter: N

Question

Need help with part b and part IV PART III Cost-Volume- Profit Analysis (15 Points) Place your answers in the spaces provided below. Show all computations. Circle your answers Kate is considering going into business producing music books to sell to elementary schools. She has an offer from a publication firm that will charge her a $5,000 setup fee and $1.50 per book. She estimates that she can sell each book for $4.00 A. B. C. D. What is the contribution margin per book? Prepare a CVP income statement. How many books does Kate need to sell in order to break even? Assume that Kate wants to earn a profit of $4,000. Calculate the number of books Kate needs to sell to earn a profit of $4,000. Assume that Kate estimates that she can sell 3,500 books. What is Kate's margin of safety in number of units and margin of safety rate? E. PART III: CVP Solution Section A. Contribution margin per unit sellay ce ion margin per unit: selty adyacablecatawsEzs- cast : 9-1s-2.s par book B. CVP Income statement C. Number of books to break even2-f 00-4000% 51wa Dab D. Number of books for $4,000 profit centibdien per beak Number of books for S4.000 profit-weidemret : D. E Margin of sfety in units and mergmofeaety se Ibthak s babe ib 300-200 2000: 1500 books

Explanation / Answer

PART - B

You do not have the quantity information about preparing a Contribution Income statement. So, it should look like the following:

CVP INCOME STATEMENT

Per Unit ($)

Number of Units

Total ($)

(A)

(B)

(A) x (B)

Sales Revenue

Less: Variable Cost

1.5

1.5X

Contribution Margin

2.5

2.5X

Less: Fixed Costs

5,000/X

5,000

Net Income

2.5 - (5,000/X)

2.5X - 5,000

PART - IV

(A) Degree of operating leverage (DOL) = Contribution margin / Net income

DOL = 2.5X / (2.5X - 5,000)

(B) DOL = % Change in operating income / % Change in sales

% change in operating income = DOL x 10

= 10 x 2.5X / (2.5X - 5,000)

= 25X / (2.5X - 5,000)

Operating (Net) income = 2.5 x (X + 500) - (5000 + 1000) = 2.5X + 1250 - 6000 = 2.5X - 4750

Increase in income = (2.5X - 4750) - (2.5X - 5000) = 250

NOTE: Numerical value in Parts (A) & (B) cannot be answered unless quantity is known.