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)

 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