ACCOUNTING FOR MANAGERS---CHAPTER 5 PROBLEMS

Problem 1

Samuel Nathan Corporation has provided the following contribution format income statement:

Sales (8,000 units)	$ 150,000
Variable expenses	90,000
Contribution margin	60,000
Fixed expenses	48,000
Net operating income	$ 12,000

Required:

(a) What is the contribution margin per unit?

(b) What is the contribution margin ratio?

(c) What is the variable expense ratio?

(d) If sales increase to 8,050 units, what would be the estimated increase in net operating

income?

(e) If sales decline to 7,900 units, what would be the estimated net operating income?

(f) If the selling price increases by $4 per unit and the sales volume decreases by 200 units, what

would be the estimated net operating income?

(g) If the variable cost per unit increases by $5, advertising increases by $3,000 and unit sales

increase by 450 units, what would be the estimated net operating income?

(h) What is the break-even point in unit sales?

(i) What is the break-even point in sales dollars?

(j) How many units must be sold to achieve a target profit of $54,500?

(k) What is the margin of safety in dollars?

(l) What is the margin of safety percentage?

(m) What is the degree of operating leverage?

(n) Using the degree of operating leverage, what is the estimated percent increase in net

operating income of a 15% increase in sales volume?

Problem 2

Jackson Company operates a cafeteria for its employees. The number of meals served each week

over the last seven weeks, along with the total costs of operating the cafeteria are given below:

Week Meals Served Cafeteria Costs

1 1,500 $4,800

2 1,600 $5,080

3 1,800 $5,280

4 1,450 $4,900

5 1,200 $4,000

6 1,650 $5,100

7 1,900 $5,400

Assume that the relevant range includes all of the activity levels mentioned in this problem.

Required:

(a) Using the high-low method of analysis, calculate the variable cost per meal served for ia

cafeteria costs.

(b) Calculate the fixed cost of the cafeteria.

(c) Construct a cost formula for total cafeteria costs.

(d) Estimate the total cafeteria costs to be incurred by Jackson Company if 2,400 meals are

served.