Ramada Company produces one golf cart model. A partially complete table of compa
ID: 2519696 • Letter: R
Question
Ramada Company produces one golf cart model. A partially complete table of company costs follows Required: 1. Complete the table. (Round your "Cost per Unit" answers to 2 decimal places.) of Golf Carts Produced and Sold Units 2000 Units 2500 Units Total costs S 1,040,000 600,000 Variable costs Foxed costs per year 600,000 600,000 Total costs S 600,000 1,640,000600,000 Cost per unit Variable cost per unt Fued cost per unit $ 520.00 520.00 300.00 52000 520.00 240.00 520 00| 82000| 76000 Total cost per unit 2. Ramada sons its ?ts for $1,300 each. Prepare a contribution margin income statement for each of the three production levels given in the table. Carts Produced and Sold 2,800,.000 1040,000 Revenue Costs Contribution Margin Costs Net Operating IncomeExplanation / Answer
Requirement-1
Golf Carts Produced and Sold
1500 units
2000 units
2500 units
Total costs
Variable costs
$780,000
$1,040,000
$1,300,000
Fixed costs per year
600,000
600,000
600,000
Total costs
$1,380,000
$1,640,000
$1,900,000
Cost per unit
Variable cost per unit
$520.00
$520.00
$520.00
Fixed cost per unit
400
300
240
Total cost per unit
$920.00
$820.00
$760.00
Requirement-2
Golf Carts Produced and Sold
1500 units
2000 units
2500 units
Sales revenue ($1,300 x units sold)
$1,950,000
$3,000,000
$3,750,000
Less: Variable costs ($520 x units sold)
$676,000
$1,040,000
$1,300,000
Contribution margin
1,274,000
1,960,000
2,450,000
Less:Fixed costs
600,000
600,000
600,000
Income from Operations
$674,000
$1,360,000
$1,850,000
Req. 4
Break-even units = Total fixed cost / Unit contribution margin
=600,000 / ($1,300–$520)
=769 carts (rounded from 769.23)
Break-even sales dollars = Break-even units x Sales price
= 769 carts x $1,300
=$999,700
Break-even units
769 unit
Break-even Dollr
999700
Req-5
Yes,
Ramada did earn a profit last year because 800 units is more than the break-even point of769 units.
Req-6
Target unit sales = (Total fixed cost + Target profit) / Unit contribution margin
= ($600,000 + $24,000) / $780
= $624,000 / $780
= 800 units
Req-7
Degree of Operating Leverage = Contribution Margin / Profit
Contribution Margin (2050 x $780/unit) $1599,000
- Fixed Cost 600,000
Profit $999,000
DOL = $1599,000 / $999,000
= 1.6
Req-8
Effect on Profit = Change in Sales x Degree of Operating Leverage
= 10% x 1.6
= 16%
Thus, a 10% decrease in sales will result in a 16% decrease in profit for Ramada.
Golf Carts Produced and Sold
1500 units
2000 units
2500 units
Total costs
Variable costs
$780,000
$1,040,000
$1,300,000
Fixed costs per year
600,000
600,000
600,000
Total costs
$1,380,000
$1,640,000
$1,900,000
Cost per unit
Variable cost per unit
$520.00
$520.00
$520.00
Fixed cost per unit
400
300
240
Total cost per unit
$920.00
$820.00
$760.00
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