college TeamCollege Team Calendars imprints calendars with college names. The co
ID: 2607816 • Letter: C
Question
college TeamCollege Team
Calendars imprints calendars with college names. The company has fixed expenses of
$1,065,000
each month plus variable expenses of
$3.50
per carton of calendars. Of the variable expense,
66%
is cost of goods sold, while the remaining 34%
relates to variable operating expenses. The company sells each carton of calendars for
$ 13.50$13.50.
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.Requirement 1. Compute the number of cartons of calendars that
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Calendars must sell each month to breakeven.
Begin by determining the basic income statement equation.
Sales revenue
-
Variable expenses
-
Fixed expenses
=
Operating income
Using the basic income statement equation you determined above solve for the number of cartons to break even.
The breakeven sales is
cartons.
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Requirements
1.
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2.
3.
4.
What is June's margin of safety (in dollars)? What is the operating leverage factor at this level of sales?
5.
16%
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Explanation / Answer
= contribution margin/operating income
Selling price per Carton $ 13.50 per Carton Variable expenses per Carton $ 3.50 per Carton Fixed expenses $ 10,65,000 Requirement 1 Break even sales (In cartons) Selling price per Carton $ 13.50 per Carton Variable expenses per Carton $ 3.50 per Carton Contribution Margin per Carton $ 10.00 per Carton Break even in unit sales = Fixed expenses/ contribution per unit = 1,065,000/$10 =106,500 cartons Basic Income Equation for Break even Sales Sales Revenue - Variable expenses - Fixed Expenses = Operating Income 1,437,750 372,750 1,065,000 - Requirement 2 Dollar amount of monthly sales that the company needs in order to earn $304,000 in operating income CM ratio = Contribution margin/Sales X 100 = $10/13.50 X 100 = 74.07 % Particulars Calculation Amount ($) Desired Profit 304,000 Add: Fixed Expenses 1,065,000 Desired Contribution 1,369,000 Desired Sales (1,369,000/74.07%) 1.848,252 (Desired Sales/ CM ratio) Requirement 3 The company's contribution margin income statement for June for sales of 470,000 cartons of calendars Particulars Calculation Amount ($) Sales 470,000 X13.5 6,345,000 Variable expenses 470,000 X3.5 1,645,000 Contribution Margin income $ 4,700,000 Requirement 4a 3.June the margin of safety margin of safety in dollar = Actual sales - Break even sales = 6,345,000-1,437,750 margin of safety in dollars = 4,907,250 Requirement 4b 4. Compute the operating leverage factor at this level of sales Sales 6,345,000 Varaible expenses 1,645,000 Contribution margin 4,700,000 Fixed Expenses 1,065,000 Operating income 3,635,000 Operating leverage factor= contribution margin/operating income
=4,700,000/3,635,000 = 1.29 Requirement 5 Percentage will operating income change, if July's sales volume is 16% higher July's Sales Volume =470,000 X116% =545,200 Cartons Sales 545,200 X13.5 7,360,200 Varaible expenses 545,200 X3.5 1,908,200 Contribution margin 5,452,000 Fixed Expenses 1,065,000 Operating income 4,387,000 Increase In Operating income =4,387,000-3,635,000 =752,000 Percentage of change in operating income = 752,000/3,635,000 X100 =20.69%Related Questions
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