Question

Spencer Company's most recent monthly contribution format income statement is given below:             Sales.................................. $60,000 Variable...

Spencer Company's most recent monthly contribution format income statement is given below:

           

Sales..................................

$60,000

Variable expenses.............

45,000

Contribution margin..........

15,000

Fixed expenses..................

18,000

Net operating loss..............

($3,000)

            The company sells its only product for $10 per unit. There were no beginning or ending inventories.

           

            Required:

           

  1. What are total sales in dollars at the break-even point?
  2. What are total variable expenses at the break-even point?
  3. What is the company's contribution margin ratio?

d.   If unit sales were increased by 10% and fixed expenses were reduced by

                 $2,000, what would be the company’s expected net operating income?

            (Prepare a new income statement)

Homework Answers

Answer #1
Spencer Company
Units Sold $60000/$10 6000
Per Unit Total
Sales 10 60000
Less: Variable Costs 7.5 45000
Contribution Margin 2.5 15000
Less: Fixed Expenses 18000
Operating (Loss) -3000

c.

CM Ratio
= Contribution Margin / Selling Price
25%

a.

Break-Even units (Dollars)
=Fixed Cost / Contribution Margin
=18000/25%
72000

b.

Units Sold @ BEP= 72000/10 7200
Variable Cost @ BEP = 7200 * 7.5 = 54000
Income Statement @ SP = $11 ($10(1+10%)) and Fixed Cost @ 16000 (18000-2000)
Units Sold 6000
Per Unit Total
Sales 11 66000
Less: Variable Costs 7.5 45000
Contribution Margin 3.5 21000
Less: Fixed Expenses 16000
Operating Profit 5000
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