ACCT 210 Lecture Notes - Lecture 6: Contribution Margin, Net Income, Income Statement
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Sales Mix and Break-Even Sales
Data related to the expected sales of snowboards and skis for Winter Sports Inc. for the current year, which is typical of recent years, are as follows:
| Products | Unit Selling Price | Unit Variable Cost | Sales Mix | |||
| Snowboards | $210 | $140 | 20% | |||
| Skis | 540 | 250 | 80% | |||
The estimated fixed costs for the current year are $280,440.
Instructions:
1. Determine the estimated units of sales of the overall product necessary to reach the break-even point for the current year.
_________________ units
2. Based on the break-even sales (units) in part (1), determine the unit sales of both snowboards and skis for the current year.
| Snowboards | _________________ units |
| Skis | _________________ units |
3. Assume that the sales mix was 80% snowboards and 20% skis. Determine the estimated units of sales of the overall product necessary to reach the break-even point for the current year.
_________________ units
4. Based upon the break-even sales (units) in part (3), determine the unit sales of snowboards and skis for the current year.
| Snowboards | _________________ units | |
| Skis | _________________ units |
5. The overall enterprise break-even point _________________ from (1) to (3) because the sales mix is weighted more toward the product with the _________________ contribution margin per unit of product.
I'll rate do all parts
Sales Mix and Break-Even Sales
Data related to the expected sales of laptops and tablets forTech Products Inc. for the current year, which is typical of recentyears, are as follows:
| Products | Unit Selling Price | Unit Variable Cost | Sales Mix | |||
| Laptops | $280 | $190 | 40% | |||
| Tablets | 410 | 190 | 60% | |||
The estimated fixed costs for the current year are $238,560.
Required:
1. Determine the estimated units of sales ofthe overall (total) product, E, necessary to reach the break-evenpoint for the current year.
units
2. Based on the break-even sales (units) inpart (1), determine the unit sales of both laptops and tablets forthe current year.
| Laptops: | units |
| Tablets: | units |
3. Assume that the sales mix was 60% laptopsand 40% tablets. Determine the estimated units of sales of theoverall product necessary to reach the break-even point for thecurrent year.
units
Why is it so different?
The break-even point is in this scenario than in part (1)because the sales mix is weighted heavily toward the product withthe contribution margin per unit of product.
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 hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:
Direct Materials: $3.00
Direct Labor: $1.50
Variable Manufacturing Overhead: $0.40
Variable Selling Expenses: $1.10
Using the information above, perform a cost-volume-profit (CVP)analysis by completing the steps below.
1. Compute net income before tax.
2. Compute the unit contribution margin in dollars and thecontribution margin ratio for one umbrella.
3. Calculate the break-even point in units and dollars ofrevenue.
4. Calculate the margin of safety:
In units
In sales dollars
As a percentage
5. Calculate the degree of operating leverage.
6. Assume that sales will increase by 20% in 2015. Calculate thepercentage of before-tax income for this increase. Providecalculations to prove that your percentage increase is correctbased on the operating leverage calculated in step 5.
7. Compute the number of umbrellas that Hampshire is required tosell if it plans to earn $150,000 in income before taxes by usingthe target income formula. Proof your calculation.
8. A company that specializes in tours in England has offered topurchase 5,000 umbrellas at $11 each from Hampshire. The variableselling costs of these additional units will be $1.30 as opposed to$1.10 per unit. Also, this production activity will incur another$15,000 of fixed administrative costs. Should Hampshire agree tosell these additional 5,000 umbrellas to the touring business?Provide calculations to support your decision.
| Requirement 1 | ||||
| Units | Price | Totals | ||
| Sales | X | $ | $ | |
| Variable Costs | X | $ | $ | |
| Fixed Costs | $ | |||
| Net Income | $ | |||
| Requirement 2 | ||||
| Contribution Margin per Unitin Dollars = Selling Price â Variable Costs | ||||
| Selling Price | Variable Costs | Contribution Margin per Unit | ||
| Contribution Margin Ratio =Contribution Margin/Selling Price | ||||
| Contribution Margin | Selling Price | Contribution Margin Ratio | ||
| Requirement 3 | ||||
| Break-Even Point = Fixed Costs/ Contribution Margin | ||||
| Fixed Costs | Contribution Margin | Break-Even Point in Units (Rounded) | ||
| Break-Even Point in Units XSelling Price per Unit = Break-Even Point Sales | ||||
| Break-Even Point in Units | Selling Price per Unit | Break-Even Point in Sales (Rounded) | ||
| Requirement 4A | ||||
| Margin of Safety in Units =Current Unit Sales â Break-Even Point in Unit Sales | ||||
| Current Unit Sales | Break-Even Point in Sales | Margin of Safety in Units | ||
| Requirement 4B | ||||
| Margin of Safety in Dollars =Current Sales in Dollars â Break-Even Point Sales in Dollars | ||||
| Current Sales in Dollars | Break-Even Point in Dollars | Margin of Safety in Dollars | ||
| Requirement 4C | ||||
| Margin of Safety as aPercentage = Margin of Sales in Units / Current Unit Sales | ||||
| Margin of Safety in Units | Current Unit Sales | Margin of Safety Percentage | ||
| Requirement 5 | ||||
| Degree of Operating Leverage =Contribution Margin / Operating Income | ||||
| Contribution Margin | Operating Income | Operating Leverage | ||
| Requirement 6 | ||||
| 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 | $ | |||
| Requirement 7 | ||||
| Targeted Income = (Fixed Costs+ Target Income) / Contribution Margin | ||||
| Fixed Costs + Target Income | Divided by Contribution Margin | # of Units (Rounded) | ||
| Fixed Costs | $ | |||
| Target Income | $ | |||
| Total | $ | $ | X | |
| # of Units Above X $ Per Unit | ||||
| Proof | Revenue | XX,XXX X $XX.XX | $ | |
| Variable Costs | XX,XXX X $X.XX | $ | ||
| Contribution Margin | $ | |||
| Fixed Costs | $ | |||
| Net Income | $ | |||
| Requirement 8 | ||||
| Sales Mix | ||||
| Current | Specialty | Total | ||
| Expected Sales Units | X | X | ||
| Revenue = Sales X Price | $ | $ | $ | |
| Variable Costs X Units | $ | $ | $ | |
| Contribution Margin | $ | $ | $ | |
| Fixed Costs | $ | $ | $ | |
| Operating Income | $ | |||
| Prior Net Income FromRequirement 1 | $ | |||
| Additional Operating Income | (Operating Income Above Less Prior Income) | $ | ||
| Decision With Explanation | ||||
