Acct 6003 Chapter 3 Homework

Use the following information to work the problems. Each problem stands alone.

Bernard Windows is a small company that installs windows. Its cost structure is as follows:

Selling price for each window installation $500

Variable cost of each window installation $400

Annual fixed costs $150,000

#1. This is also TRY IT 3-2 on page 75.

Calculate (a) the breakeven point in units and revenue and (b) the number of windows Bernard Windows must install and the revenues needed to earn a target operating income of $100,000.

#2. TRY IT 3-3 on page 77.

Same information as above but now tax rate is 30%. Calculate the number of windows Bernard Windows must install and the revenues needed to earn a target net income of $63,000.

#3. TRY IT 3-4 on page 82. Calculate the margin of safety in units and dollars and the margin of safety percentage if the company expects to sell 2,400 windows in the year.

#4. TRY IT 3-5 on page 84. Number of units sold is 2500.

Bernard is considering changing its sales compensation for next year. Bernard would pay salespeople a 5% commission next year and reduce fixed costs by $62,500. Calculate the degree of operating leverage at sales of 2,500 units under the two options. Comment briefly on the result.

#5. TEY IT 3-6 on page 87.

Bernard Windows plans to sell two different brands of windows-- Chad and Musk--- and budgets the following:

Chad Musk Total

Expected sales 2500 1000 3500

Revenues (500 and 350 per unit) $1,250,000 $350,000 $1,600,000

Variable cost ( 400 and 275 per unit) $1,000,000 $275,000 $1,275,000

Contribution margin (100 and 75 ) 250,000 $75,000 $325,000

Fixed costs $195,000

Operating income $130,000

Calculate the break even point for Bernard Windows in terms of the (a) number of units sold and (b) revenues.