Dana\'s Ribbon World makes award rosettes. Following is information about the co

Question

Dana's Ribbon World makes award rosettes. Following is information about the company: Variable cost per rosette Sales S 2.60 5.00 4800.00 price per rosette Total fixed costs per month Required: 1. Suppose Dana's would like to generate a profit of $1,080. Determine how many rosettes it must sell to achieve this target profit. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole number.) Units 2. If Dana's sells 2,100 rosettes, compute its margin of safety in units, in sales dollars, and as a percentage of sales. (Round your Margin of Safety percentage to two decimal places (i.e. .1234 should be entered as 12.34%). Margin of Safety (Units) Margin of Safety in Dollars Percentage of Sales Rosettes 3. Calculate Dana's degree of operating leverage if it sells 2,100 rosettes. (Round your intermediate calculations to 2 decimal places and final answer to 4 decimal places.) of Operating Leverage 4. Using the degree of operating leverage, calculate the change in Dana's profit if unit sales drop to 1,848 units. Confirm this by preparing a new contribution margin income statement. (Round your intermediate calculations to 4 decimal places and final answer to 2 decimal places. (i.e. .1234 should be entered as 12.34%.)) Effect on Profit

Explanation / Answer

1. Computation of Target unit to Achieve target Profit Fixed Cost $4,800.00 Target Profit $1,080.00 Target Contribution Margin $5,880.00 Contribution/rosette ($5-$2.60) $2.40 No. of Rosette to be sold for target Profit ( $5880/$2.40 2450 Unit 2. Computation of Margin of Safety in Dollar/Unit & percentage of Sales Sales/ Unit $5.00 Less: Variable Cost/Unit $2.60 Contribution/Unit $2.40 Fixed Cost $4,800.00 BreakEven ( Unit) ( Fixed Cost/Contr per Unit) $2,000.00 Total Unit Sold 2100 Unit Margin of Safety (in Units) ( 2100-2000 Unit) 100 Unit Margin Of Safety (in Dollar) ( 100 Unit*$5) $500.00 Percentage of Sales Margin of Safety/Sales) ($500/( 2100 Unit*$5) 4.76% 3. Computation of Degree of Operating Leverage Sales (2100 Unit * $5) $10,500.00 Less: Variable Cost ( 2100 Unit*$2.60) $5,460.00 Contribution Margin $5,040.00 Less: Fixed Cost $4,800.00 Net Income/ $240.00 Degree of Operating Leverage (Contribution Margin/Net Income)                      21 4. Computation of Change in Profit when Sale unit drop to 1848 Unit Existing Sales Units 2100 Unit Revised Sales Unit 1848 Unit Change in Sales Unit 252 Unit % Decrease in Sales( 252/2100) 12% Present Net Operating Income from 2100 unit Sales $240.00 Decrease In Profit ( Change in Sales % * Degree of operating Leverage) 252% ( 12%*21) 4. Contribution Margin Income Statement ( For 1848 Unit) Sales (1848 Unit * $5) $9,240.00 Less: Variable Cost ( 1848 Unit*$2.60) $4,804.80 Contribution Margin $4,435.20 Less: Fixed Cost $4,800.00 Net Income/ -$364.80 Present Net Operating Income $240.00 Change in Profit due to Change in Sales Unit -$605.00

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