AFM102 Lecture 4: AFM 102 Week 4 Chapter 4
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15 Jan 2017
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Exercise5-11 Break-Even Analysis; Target Profit; Margin of Safety; CM Ratio[LO1, LO3, LO5, LO6, LO7] | ||||||||
Pringle Company distributes asingle product. The companyâs sales and expenses for a recent monthfollow: | ||||||||
Total | Per Unit | |||||||
Sales | $ | 304,000 | $ | 20 | ||||
Variable expenses | 212,800 | 14 | ||||||
Contribution margin | 91,200 | $ | 6 | |||||
Fixed expenses | 74,400 | |||||||
Net operating income | $ | 16,800 | ||||||
Required: | ||||||||
1. What is the monthlybreak-even point in units sold and in sales dollars? (Omit the "$"sign in your response.) | ||||||||
Break-even point in unitsales |
| |||||||
Break-even point in salesdollars | $ | |||||||
2. Without resorting tocomputations, what is the total contribution margin at thebreak-even point? (Omit the "$" sign in your response.) | ||||||||
Total contribution margin |
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3. How many units would haveto be sold each month to earn a target profit of $31,800? Use theformula method. | ||||||||
Units sold | ||||||||
Refer to the original data.Compute the company's margin of safety in both dollar andpercentage terms. (Round your percentage answer to 2 decimalplaces. Omit the "$" and "%" signs in your response.) | ||||||||
Dollars | Percentage | |||||||
Margin of safety |
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5. What is the companyâs CMratio? If monthly sales increase by $63,000 and there is no changein fixed expenses, by how much would you expect monthly netoperating income to increase? (Omit the "$" and "%" signs in yourresponse.) | ||||||||
CM ratio |
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Net operating income increasesby | $ |