ACCT 2102 Spring 2020 Comprehensive Problem 2-1 On January 1, 2020, John Smith launched a computer services company, Technology Business Solutions that is organized as a corporation and provides computer consulting services and computer system installations Smith adopts the calendar year for reporting purnoses. After the initial success of the company, John Smith continues to operate Technology Business Solutions and has expanded into computer systems manufacturing and sales. They are currently contracting with several large businesses to develop and construct their systems. 1. The company wants to see its income statement for the current month, August. (Comprehensive Problem 1) in the contribution format. The Income Statement for the previous month, July 2020, is given below: Sales $128,625 Cost of goods sold 78,472 Gross Margin 50,153 Selling and administrative expenses: Selling expense 31,000 Utility Expense 5,500 Depreciation Expense 6,000 Executive Salaries Expense 24,000 66,500 Net operating income $.-16.347 The company completed and sold 3 systems in July Required: 1. Answer the following questions: to which expenses from the Income Statement are fixed, variable and mixed and, by use of the high-low method, separate each mixed expense into its variable and fixed components. STATE the COST FORMULA ved expense. The company completed and sold 8 systems in August. Show all Calculations h Complete the company's contribution format income statement for AUGUST 2. Using the contribution format income stat (round all answers to two der contribution format income statement from #1 for August, answer the following questions answers to two decimal places (if appropriate) (Show all calculations!) What is the contribution margin per unit What is the contribution margin ratio? What is the variable expense ratio? f. If sales increase to 11 unit 8. If sales decline to 7 h. What is the break 1. What is the break 1. How many unitsm k. What is the mare 1. What is the degre crease to 11 units, what would be the increase in net operating income? decline to 7 units, what would be the net operating income? is the break-even point in unit sales? the break-even point in dollar sales? any units must be sold to achieve a target profit of $100,000? the margin of safety in dollars? What is the margin of safety percentage? the degree of operating leverage? the degree of operating leverage, what is the estimated percent increase in net operating m. Using the de income of a 5% increase in sales? Use Sensitivity Analysis to answer n through pleach scen August information for each). is to answer n through p (each scenario is independent of any other, refer to the origin n. Refer to the original data in (1) above. Assume The sales manager believes a 10% increase in variable u dies manager believes a 10% increase in variable unit selline expenses will increase sales volume If the sales volume increases by 28.5%, what will be the change in net operating income? is this why or why not? o. Refer to the original data in (1) above. t uli materials will Assume the marketing manager believes that an increase in advertising and better quality materials wi increase sales volume by 40%. If this change increases the per unit variable production costs by Tixed selling expenses increase by 12% what will be the new break-even point in dollar sales? Change in Net Income? Is this a good idea, why or why not? p. Refer to the original data in (1) above. Using the degree of operating leverage calculated above (round two decimal places), what would net income be if sales increase by 20%? Verify your calculation using the contribution format income statement. Technology Business Solutions Income Statement For the Month Ended August 2020 $343,000 177.775 165,225 Sales Cost of goods sold Adjusted cost of goods sold Gross margin Selling and administrative expenses: Administrative salaries expense Selling expense Utility Expense Depreciation expense Net operating income 24,000 48,000 5,500 6,000 83,500 81.725 ACCT 2102 Spring 2020 Comprehensive Problem 2-1 On January 1, 2020, John Smith launched a computer services company, Technology Business Solutions that is organized as a corporation and provides computer consulting services and computer system installations Smith adopts the calendar year for reporting purnoses. After the initial success of the company, John Smith continues to operate Technology Business Solutions and has expanded into computer systems manufacturing and sales. They are currently contracting with several large businesses to develop and construct their systems. 1. The company wants to see its income statement for the current month, August. (Comprehensive Problem 1) in the contribution format. The Income Statement for the previous month, July 2020, is given below: Sales $128,625 Cost of goods sold 78,472 Gross Margin 50,153 Selling and administrative expenses: Selling expense 31,000 Utility Expense 5,500 Depreciation Expense 6,000 Executive Salaries Expense 24,000 66,500 Net operating income $.-16.347 The company completed and sold 3 systems in July Required: 1. Answer the following questions: to which expenses from the Income Statement are fixed, variable and mixed and, by use of the high-low method, separate each mixed expense into its variable and fixed components. STATE the COST FORMULA ved expense. The company completed and sold 8 systems in August. Show all Calculations h Complete the company's contribution format income statement for AUGUST 2. Using the contribution format income stat (round all answers to two der contribution format income statement from #1 for August, answer the following questions answers to two decimal places (if appropriate) (Show all calculations!) What is the contribution margin per unit What is the contribution margin ratio? What is the variable expense ratio? f. If sales increase to 11 unit 8. If sales decline to 7 h. What is the break 1. What is the break 1. How many unitsm k. What is the mare 1. What is the degre crease to 11 units, what would be the increase in net operating income? decline to 7 units, what would be the net operating income? is the break-even point in unit sales? the break-even point in dollar sales? any units must be sold to achieve a target profit of $100,000? the margin of safety in dollars? What is the margin of safety percentage? the degree of operating leverage? the degree of operating leverage, what is the estimated percent increase in net operating m. Using the de income of a 5% increase in sales? Use Sensitivity Analysis to answer n through pleach scen August information for each). is to answer n through p (each scenario is independent of any other, refer to the origin n. Refer to the original data in (1) above. Assume The sales manager believes a 10% increase in variable u dies manager believes a 10% increase in variable unit selline expenses will increase sales volume If the sales volume increases by 28.5%, what will be the change in net operating income? is this why or why not? o. Refer to the original data in (1) above. t uli materials will Assume the marketing manager believes that an increase in advertising and better quality materials wi increase sales volume by 40%. If this change increases the per unit variable production costs by Tixed selling expenses increase by 12% what will be the new break-even point in dollar sales? Change in Net Income? Is this a good idea, why or why not? p. Refer to the original data in (1) above. Using the degree of operating leverage calculated above (round two decimal places), what would net income be if sales increase by 20%? Verify your calculation using the contribution format income statement. Technology Business Solutions Income Statement For the Month Ended August 2020 $343,000 177.775 165,225 Sales Cost of goods sold Adjusted cost of goods sold Gross margin Selling and administrative expenses: Administrative salaries expense Selling expense Utility Expense Depreciation expense Net operating income 24,000 48,000 5,500 6,000 83,500 81.725