Change all of the numbers in the data area of your worksheet so that it looks li

Question

Change all of the numbers in the data area of your worksheet so that it looks like this:

A

B

C

D

If your formulas are correct, you should get the correct answers to the following questions.

      

What is the margin of safety percentage?

      

What is the degree of operating leverage? (Round your answer to 2 decimal places.)

      

Using the degree of operating leverage and without changing anything in your worksheet, calculate the percentage change in net operating income if unit sales increase by 20%.

       

Confirm your calculations in Requirement 3 above by increasing the unit sales in your worksheet by 20% so that the Data area looks like this:

What is net operating income? (Negative amount should be indicated by a minus sign.)

      

By what percentage did the net operating income increase?

      

Thad Morgan, a motorcycle enthusiast, has been exploring the possibility of relaunching the Western Hombre brand of cycle that was popular in the 1930s. The retro-look cycle would be sold for $13,000 and at that price, Thad estimates 700 units would be sold each year. The variable cost to produce and sell the cycles would be $9,750 per unit. The annual fixed cost would be $1,820,000.

      

What is the margin of safety in dollars?

      

      

     

2.

Change all of the numbers in the data area of your worksheet so that it looks like this:

A

B

C

D

1 Chapter 5: Applying Excel 2 3 Data 4 Unit sales 30,000 units 5 Selling price per unit $60 per unit 6 Variable expenses per unit $42 per unit 7 Fixed expenses $405,000 8 Chapter 5: Applying Excel 2 3 Data 4 Unit sales 5 Selling price per unit 6 Variable expenses per unit 7 Fixed expenses 8 36,000 units $60 per unit $42 per unit $405,000

Explanation / Answer

Answer: (a) Break-even in dollar sales =Fixed Cost/Contribution margin =$405,000/30% $          1,350,000.00 where, Contribution margin Selling price per unit $                         60.00 Less: Variable cost $                         42.00 Contribution $                         18.00 Contribution margin 30% (b) Margin of safety percentage Bugeted Sales - Break-even Sales =30000*60-$1,350,000 $              450,000.00 (c ) Degree of operating leverage =Contribution/Net income =540,000/135,000 400.00% 3 Percent change in Net income =Percent change in Sales*Degree of operating leverage =20%*400% 4 Work Sheet Unit Sales                           36,000                           30,000 Selling Price per Unit $                         60.00 $                         60.00 Sales $          2,160,000.00 (36,000*$60) $          1,800,000.00 Less: Variable Cost $          1,512,000.00 (36,000*$42) $          1,260,000.00 Contribution $              648,000.00 $              540,000.00 Less: Fixed Cost $              405,000.00 $              405,000.00 Net profit $              243,000.00 $              135,000.00 (a) Net income $              243,000.00 (b) Percentage increase in net income =($243,000-135,000)/135,000 80.00%

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