1. Assignment

Dana's Ribbon World makes award rosettes. Following is information about the company:

Variable cost per rosette $ 1.80

Sales price per rosette 4.00

Total fixed costs per month 1100.00

Required:

Suppose Dana's would like to generate a profit of $940. Determine how many rosettes it must sell to achieve this target profit.

If Dana's sells 890 rosettes, compute its margin of safety in units, in sales dollars, and as a percentage of sales.

Calculate Dana's degree of operating leverage if it sells 890 rosettes.

a. Using the degree of operating leverage, calculate the percentage change in Dana's profit if unit sales drop to 712 units.

b. Prepare a new contribution margin income statement to verify change in Dana's profit.

2. Assignment

Biscayne s Rent-A-Ride rents two models of automobiles: the standard and the deluxe. Information follows:

Rental price per day:

Variable cost per day

Standard.

$ 54.00

24.30

Deluxe

$ 54.00

24.30

Biscayne's total fixed cost is $14,525 per month.

Required:

Determine the contribution margin per rental day and contribution margin ratio for each model that Biscayne's offers.

Which model would Biscayne's prefer to rent?

Calculate Biscayne's break-even point if the product mix is 50/50

Calculate the break-even point if Biscayne's product mix changes so that the standard model is rented 75 percent of the time and the deluxe model is rented for only 25 percent.

Calculate the break-even point if Biscayne's product mix changes so that the standard model is rented 25 percent of the time and the deluxe model is rented for 75 percent.

3. Assignment

Biscayne's Rent-A-Ride rents two models of automobiles: the standard and the deluxe. Information follows:

Rental price per day

Variable cost per day

Standard

$ 36.00

13.50

Deluxe

$ 44.00

18.20

Biscayne's total fixed cost is $20,000 per month.

Required:

Determine Biscayne's new break-even point in each of the following independent scenarios:

Product mix is 40/60.

Sales price increases on both models by 20 percent. (Assume a product mix of 50/50.)

Fixed costs increase by $2,800. (Assume a product mix of 50/50.)

Variable costs increase by 30 percent. (Assume a product mix of 50/50.)