Question

Break-Even in Units, Target Income, New Unit Variable Cost, Degree of Operating Leverage, Percent Change in...

Break-Even in Units, Target Income, New Unit Variable Cost, Degree of Operating Leverage, Percent Change in Operating Income

Reagan, Inc., has developed a chew-proof dog bed—the Tuff-Pup. Fixed costs are $224,000 per year. The average price for the Tuff-Pup is $37, and the average variable cost is $23 per unit. Currently, Reagan produces and sells 20,000 Tuff-Pups annually.

Required:

1. How many Tuff-Pups must be sold to break even?
units

2. If Reagan wants to earn $79,800 in profit, how many Tuff-Pups must be sold?
units

Prepare a variable-costing income statement to verify your answer.

Reagan, Inc.
Variable-Costing Income Statement
Sales $
Less: Variable cost
Contribution margin $
Less: Fixed expenses
Operating income $

Feedback

Remember a contribution margin income statement calculates contribution-margin not gross profit.

3. Suppose that Reagan would like to lower the break-even units to 11,200. The company does not believe that the price or fixed cost can be changed. Calculate the new unit variable cost that would result in break-even units of 11,200. If required, round your intermediate computations and final answer to the nearest cent.
$

4. What is Reagan’s current contribution margin and operating income?

Current contribution margin $
Current operating income $

Calculate the degree of operating leverage. Round your answer to three decimal places.

If sales increased by 10 percent next year, what would the percent change in operating income be? Use your rounded answer to the question above in your computations, and round your final percentage answer to two decimal places (for example, 45.555% would be entered as "45.56").
%

What would the new total operating income for next year be? Round your answer to the nearest dollar

Homework Answers

Answer #1

1) Break even point = 224000/(37-23) = 16000 Units

2) Required unit = (224000+79800)/(37-23) = 21700 Units

Sales 802900
Variable cost 499100
Contribtution margin 303800
Fixed cost 224000
Net operting income 79800

3) 11200 = 224000/(37-X)

414400-11200X = 224000

-11200X = 224000-414400

-11200 = -190400

X(variable cost per unit ) = 17

4) Current contribution margin = 14*20000 = 280000

Current operating income = 280000-224000 = 56000

Degree of operating leverage = 280000/56000 = 5 Times

Net operating incoome increase by = 5*10 = 50%

New total operating income = 56000*1.5 = 84000

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Break-Even Units, Contribution Margin Ratio, Multiple-Product Breakeven, Margin of Safety, Degree of Operating Leverage Jellico Inc.'s...
Break-Even Units, Contribution Margin Ratio, Multiple-Product Breakeven, Margin of Safety, Degree of Operating Leverage Jellico Inc.'s projected operating income (based on sales of 450,000 units) for the coming year is as follows: Total Sales $11,700,000 Total variable cost 8,190,000 Contribution margin $3,510,000 Total fixed cost 2,254,200 Operating income $1,255,800 Required: 1(a). Compute variable cost per unit. Round your answer to the nearest cent. $per unit 1(b). Compute contribution margin per unit. Round your answer to the nearest cent. $per unit...
Break-Even Units, Contribution Margin Ratio, Multiple-Product Breakeven, Margin of Safety, Degree of Operating Leverage Jellico Inc.'s...
Break-Even Units, Contribution Margin Ratio, Multiple-Product Breakeven, Margin of Safety, Degree of Operating Leverage Jellico Inc.'s projected operating income (based on sales of 450,000 units) for the coming year is as follows: Total Sales $ 11,700,000 Total variable cost 6,669,000 Contribution margin $ 5,031,000 Total fixed cost 2,871,024 Operating income $ 2,159,976 Required: 1(a). Compute variable cost per unit. Enter your answer to the nearest cent. $per unit 1(b). Compute contribution margin per unit. Enter your answer to the nearest...
Break-Even Units, Contribution Margin Ratio, Multiple-Product Breakeven, Margin of Safety, Degree of Operating Leverage Jellico Inc.'s...
Break-Even Units, Contribution Margin Ratio, Multiple-Product Breakeven, Margin of Safety, Degree of Operating Leverage Jellico Inc.'s projected operating income (based on sales of 450,000 units) for the coming year is as follows: Total Sales $ 11,700,000 Total variable cost 7,371,000 Contribution margin $ 4,329,000 Total fixed cost 2,705,144 Operating income $ 1,623,856 1(a). Compute variable cost per unit. Enter your answer to the nearest cent. $per unit 1(b). Compute contribution margin per unit. Enter your answer to the nearest cent....
At the break-even point, Jefferson Company sells 115,000 units and has fixed cost of $350,000. The...
At the break-even point, Jefferson Company sells 115,000 units and has fixed cost of $350,000. The variable cost per unit is $0.30. What price does Jefferson charge per unit? Note: Round to the nearest cent. $ 2. Sooner Industries charges a price of $114 and has fixed cost of $421,500. Next year, Sooner expects to sell 14,000 units and make operating income of $184,000. What is the variable cost per unit? What is the contribution margin ratio? Note: Round your...
Break-Even Units: Units for Target Profit Jay-Zee Company makes an in-car navigation system. Next year, Jay-Zee...
Break-Even Units: Units for Target Profit Jay-Zee Company makes an in-car navigation system. Next year, Jay-Zee plans to sell 23,000 units at a price of $330 each. Product costs include: Direct materials $69.00 Direct labor $40.00 Variable overhead $10.00 Total fixed factory overhead $606,800 Variable selling expense is a commission of 5 percent of price; fixed selling and administrative expenses total $111,000. Required: 1. Calculate the sales commission per unit sold. If required, round your answers to the nearest dollar....
Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage Belmain Co. expects to...
Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these...
Hide or show questions Progress:10/29 items Calculator Break-Even Units, Contribution Margin Ratio, Multiple-Product Breakeven, Margin of...
Hide or show questions Progress:10/29 items Calculator Break-Even Units, Contribution Margin Ratio, Multiple-Product Breakeven, Margin of Safety, Degree of Operating Leverage Jellico Inc.'s projected operating income (based on sales of 450,000 units) for the coming year is as follows: Total Sales $ 9,000,000 Total variable cost 5,310,000 Contribution margin $ 3,690,000 Total fixed cost 2,476,400 Operating income $ 1,213,600 Required: 1(a). Compute variable cost per unit. Enter your answer to the nearest cent. $per unit 1(b). Compute contribution margin per...
1) Given the following contribution format income statement, calculate break-even in units. Sales (50,000 units) $...
1) Given the following contribution format income statement, calculate break-even in units. Sales (50,000 units) $ 1,200,000 Variable expenses 550,000 Contribution margin 650,000 Fixed expenses 124,800 Net operating income $        525,200 You must format your answers as follows: x,xxx 1a) Price and cost information relating to Marble, Ltd's only product is shown below: Selling price per unit $22.00 Variable expense per unit $14.30 Fixed expense per month $420,000    The break-even in sales dollars is _______. You must enter your answer...
Contribution Margin Ratio, Variable Cost Ratio, Break-Even Sales Revenue The controller of Sandoval Company prepared the...
Contribution Margin Ratio, Variable Cost Ratio, Break-Even Sales Revenue The controller of Sandoval Company prepared the following projected income statement: Sales $90,000 Total Variable cost 79,000 Contribution margin $11,000 Total Fixed cost 6,500 Operating income $4,500 Required: 1. Calculate the contribution margin ratio. Round your answer to the nearest whole number. % 2. Calculate the variable cost ratio. Round your answer to the nearest whole number. % 3. Calculate the break-even sales revenue for Sandoval. If required, round your answer...
The Kandy Shop has an operating income of $29,000. a) Calculate the degree of operating leverage...
The Kandy Shop has an operating income of $29,000. a) Calculate the degree of operating leverage for each of the independent cases (assuming operating income is held constant): i. Contribution Margin is $58,000. ii. CM ratio is 56% and revenue is $133,000. iii. Selling price per unit is $34, variable costs per unit are $16 and it sold 3,200 units. Do not enter dollar signs or commas in the input boxes. Round contribution margin and operating income to the nearest...