Question

XYZ company's sales $800000, unit variable cost $8, fixed expense $100000, and number of units sold equals 80000.

Requirements (1-10):

1. Net operating income.

2. Contribution margin percentage.

3. Unit fixed cost.

4. Break-even point in unit sold.

5. Break-even point in total sales dollar.

6. Unit sales to attain the target profit 76000.

7. Margin of safety (Units).

8. Margin of safety (%).

9. Degree of operating leverage.

10.In original information, if the number of quantity sold increase by 10%, what is the new net operating income?

Answer 1

Sales	$800,000
Less: Variable costs	($640,000)
Contribution margin	$160,000
Less: Fixed expenses	($100,000)
Net operating income	$60,000

1. Net operating income=$60,000

2. Contribution margin ratio =$160,000/$800,000=20%

3. Unit fixed cost =$100,000/80,000=$1.25

4. Break even point= Fixed cost/ Contribution margin per unit =$100,000/$2 =50,000 units

5. Break even point (dollars) =50,000×$10 =$500,000

6. Unit sales to attain target profit= Fixed expense + Target profit/ Contribution margin per unit =($100,000+$76,000)//$2

=88,000 units

7. Margin of safety = Actual sales - Break even sales

=80,000-50,000

=30,000 units

8. Margin of safety (%) =30,000/80,000 =37.5%

9. Degree of operating leverage = Contribution margin/ Net operating income

=$160,000/$60,000

=2.67

10. Quantity sales increased by 10% then new sales quantity=80,000+10% =88,000 units

Sales (88,000×$10)	$880,000
Less: Variable costs(88,000×$8)	($704,000)
Contribution margin	$176,000
Less: fixed expenses	($100,000)
Net operating income	$76,000

New net operating income=$76,000