Ramada Company produces one golf cart model. A partially complete table of compa
ID: 2521031 • 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.)
600,000
2. Ramada sells its carts for $1,050 each. Prepare a contribution margin income statement for each of the three production levels given in the table.
4. Calculate Ramada’s break-even point in number of units and in sales revenue. (Round your final answers to the nearest whole number.)
5. Assume Ramada sold 1,000 carts last year. Without performing any calculations, determine whether Ramada earned a profit last year.
6. Calculate the number of carts that Ramada must sell to earn $30,000 profit.
7. Calculate Ramada’s degree of operating leverage if it sells 2,050 carts. (Round your answer to 4 decimal places. (i.e. .12345 should be entered as 12.345%.))
8. Using the degree of operating leverage, calculate the change in Ramada’s profit if sales are 10 percent less than expected. (Round your answer to 3 decimal places.)
600,000
Total Costs $1,440,000 Cost per Unit Variable Cost per Unit Fixed Cost per Unit Total Cost per UnitExplanation / Answer
1) Number of Golf carts produced and sold 1,500 2,000 2,500 total costs variable costs 630000 840,000 1050000 fixed costs per year 600,000 600,000 600,000 total costs 1230000 1,440,000 1650000 cost per unit variable cost per unit 420 420 420 fixed cost per unit 400 300 240 total cost per unit 820 720 660 2) golf carts produced and sold 1,500 2,000 2,500 Sales (units*1,050) 1575000 2100000 2625000 less:Variable cost (units*420) 630000 840,000 1050000 contribution margin 945000 1,260,000 1575000 Fixed costs 600,000 600,000 600,000 Net income 345,000 660,000 975,000 4) BEP(units) = fixed cost/contribution margin per unit BRP(sales revenue)= fixed cost/contribution margin ratio contribution margin per unit = 1050 - 420= 630 Contributiion margin ratio = 630/1050= 0.6 0r 60% Break-even units 952 Carts Break-even sales revenue 1000000 5) Yes earned profit (since contribution = 1000*630 = 630,000 which is less than fixed cost) 6) Target unit sales = (fixed cost+Target profit)/contribution margin per unit (600,000+30,000)/630 1000 units 7) Degree of operating leverage = contribution /net income (630*2050)/(630*2050-600,000) 1.8677 8) Effect on profit 18.677 % (1.8677*10%) profit will fall by 18.677%
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