Make sure you are reviewing my support material in the chapter folders.
ABC company produces a special type of chemical. Below is the projected income statement for the coming year:
Required:
1. Compute contribution margin per unit.
2. Calculate the break-even in units.
3. Calculate the contribution margin ratio.
4. Calculate the break-even in sales dollars.
5. Complete the income statement at breakeven point. Your operating income should be zero.
6. What is the margin of safety in sales dollars?
7. Compute the degree of operating leverage based on the income statement given at the beginning of the problem.
8. If sales revenues are 8% greater than expected, what is the percentage increase in operating income?
9. The CEO has decided to increase the advertising budget by $300,000. This will increase sales revenue by $1 million.
By how much will operating income increase or decrease as a result of this action? Is this a profitable decision that should be taken?
Make sure you show your analysis.
10. What if the total fixed costs were all fixed manufacturing overhead and 160,000 units were produced, what would be the Fixed overhead rate used in absorption costing?
FOH Rate
11. What if the total variable cost includes $600,000 of variable selling and administrative costs, what is the variable product cost per unit?
Variable Product cost per unit
12. What is the absorption product cost per unit?
13. Would absorption or variable costing have a higher income based on selling 150,000 units and producing 160,000? Explain your answer.
14. Without developing another income statement, compute the difference in income between the absorption costing and variable costing methods.
15. Going back to the original income statement provided how many units would the company need to sell to earn a targeted operating income of $1,200,000?
16. Proof your answer from #14 by developing an income statement at the targeted operating income of $1,200,000. Your operating income should be $1,200,000.