The Hampshire Company manufactures umbrellas that sell for $12.50 each. In 2014,

Question

The Hampshire Company manufactures umbrellas that sell for $12.50 each. In 2014, the company made and sold 60,000 umbrellas. The company had fixed manufacturing costs of $216,000. It also had fixed costs for administration of $79,525. The per-unit costs of each umbrella are as follows:

Direct Materials: $3.00

Direct Labor: $1.50

Variable Manufacturing Overhead: $0.40

Variable Selling Expenses: $1.10

6. Assume that sales will increase by 20% in 2015. Calculate the percentage of before-tax income for this increase. Provide calculations to prove that your percentage increase is correct based on the operating leverage. Please fill in this spreadsheet:

Units $ Per Unit Totals Sales X $ $ Variable Costs X $ $ Fixed Costs $ Net Income $ Operating Leverage Times % Increase Increase would be XX% Prior Income $ From Part 1 Increase $ Prior Income X   XX% Above Total $

Explanation / Answer

Solution :-

Particulars 2014 2015 Sales(60000*$12.5), for 2015 ((60000+20%*60000)*$12.5) $750000 $900000 Less : Variable Cost(($3+$1.5+$0.4+$1.1)*60000) ($360000) ($432000) Contribution $390000 $468000 Less : Fixed Cost($216000*$79525) ($295525) ($295525) Net Income $94475 $172475 % Increase in Net Income(($172475-$94475)/$94475)*100 82.5615%

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