Write T if the statement is true and hmn 6) Vertical analysis of financial state

Question

Write T if the statement is true and hmn 6) Vertical analysis of financial statements statements. if the statement is false. 6) is accomplished by preparing oreparing common-size 7) Liquidity refers to how quickly an asset can be cons 8) The gross margin percentage is computed by dividing 7) 8) AY. Write your answer in the space provided or on a 9) Brihon Corporati separate sheet of paper. lces and sells a single product. Data concerning that product appear below: Selling price per unit Variable expense per unit Fixed expense per month 230.00 103.50 S S 518,650 Required: a. Assume the company's monthly target profit is $12,650. Determine the unit sales to attain that targ b. Assume the company's monthly target profit is $63,250. Determine the dollar sales to attain that ta profit 10) Haslem Inc, has provided the following data concerning its only product: S Selling price Current sales Break-even sales 100 per unit 37,300 units 26,483 units Required: Compute the margin of safety in both dollars and as a percentage of sales A-2

Explanation / Answer

Answer

---Answer to 6: The statement is True, Vertical analysis of financial statements is accomplished by preparing common size statements. For each year, values are considered in the form of percentage of base figure

All individual assets are shown as a percentage of total assets. The current liabilities, long term debts and equities are shown as a percentage of the total liabilities and stockholders’ equity.

To conduct a vertical analysis of income statement, sales figure is generally used as the base and all other components of income statement like cost of sales, gross profit, operating expenses, income tax, and net income etc. are shown as a percentage of sales.

---Answer to 7: The statement is also True, Liquidity refers to how quickly an asset can be converted into cash. The more liquid (convertible) the assets are, the more liquid the company is said to be, in relation to paying off its obligations and liabilities.

---Answer to 8: The statement is FALSE, as the gross margin percentage is NOT computed by dividing sales by the gross margin. Its actually calculated by dividing gross margin by the amount of Sales.

Note that contribution per unit = $126.5

Part (a): if monthly target profit is $12650, it means that the contribution margin should be equal to Fixed Cost + the target profit. Fixed Cost = $518650
Contribution required = 518650 + 12650 = $531300
Contribution per unit = $126.5

Hence, units to be sold for earning targeted profit = 531300 / 126.5 = 4200 units

Part (b): if monthly target profit is $63250, it means that the contribution margin should be equal to Fixed Cost + the target profit. Fixed Cost = $518650
Contribution required = 518650 + 63250 = $581900
Contribution per unit = $126.5

Hence, units to be sold for earning targeted profit = 581900 / 126.5 = 4600 units

Dollar Sales will be Units x Selling price per unit
Dollar Sales = 4600 units x $230 per unit = $ 1058000

Note that margin of Safety Sales = Total Sales (-) Break Even Sales
Margin of Safety in units = 37300 – 26483 = 10817 units

Margin of Safety in dollars = MOS in units x Selling price per unit = 10817 x 100 = $1081700

Sales in dollars = 37300units x 100 = $3730000

Margin of Safety as a percentage of Sales = 1081700 / 3730000 = 29%

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