Basic CVP Concepts

Katayama Company produces a variety of products. One division makes neoprene wetsuits. The division's projected income statement for the coming year is as follows:

Sales $(65,000$ units$)$ $$15,600,000$

Less: Variable expenses $8,736,000$

Contribution margin $$6,864,000$

Less: Fixed expenses $4,012,000$

Operating income $$2,852,000$

Required:

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$1.$ Compute the contribution margin per unit, and calculate the break$-$even point in units. Round unit contribution margin to the nearest cent and break$-$even point to the nearest whole unit.

Unit contribution margin $fill in the blank f$5902$f$089$ffa$066\_1$

Break$-$even point fill in the blank f$5902$f$089$ffa$066\_2$

units

Compute the contribution margin ratio and the break$-$even point in dollars. Enter the contribution margin ratio as a decimal value rounded to two decimal places, and use this rounded value in the second calculation.

Contribution margin ratio fill in the blank f$5902$f$089$ffa$066\_3$

Break$-$even point $($rounded to the nearest dollar$)$ $fill in the blank f$5902$f$089$ffa$066\_4$

$2.$ The divisional manager has decided to increase the advertising budget by $$140,000$ and cut the average selling price to $$200.$ These actions will increase sales revenues by $$1$ million. Will this improve the division's financial situation?

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Prepare a new income statement to support your answer. In your calculations, round the variable cost ratio to three decimal places.

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Katayama Company

Income Statement

$$-$ Select $-$

$-$ Select $-$

$$-$ Select $-$

$-$ Select $-$

$$-$ Select $-$

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$3.$ Suppose sales revenues exceed the estimated amount on the income statement by $$612,000.$ Without preparing a new income statement, determine by how much profits are underestimated.

$fill in the blank $14563$af$0$cfc$9$f$89\_1$

$4.$ How many units must be sold to earn an after$-$tax profit of $$1\mathrm{.}254$ million? Assume a tax rate of $34$ percent. Round your answer to the nearest whole unit.

fill in the blank $14563$af$0$cfc$9$f$89\_2$

units

$5.$ Compute the margin of safety in dollars based on the given income statement. Round your answer to the nearest dollar.

$fill in the blank $14563$af$0$cfc$9$f$89\_3$

$6.$ Compute the operating leverage based on the given income statement. Round your answer to three decimal places. Use the rounded answer in the subsequent computation.

fill in the blank $14563$af$0$cfc$9$f$89\_4$

If sales revenues are $20$ percent greater than expected, what is the percentage increase in profits? Round the percentage to two decimal places.

fill in the blank $14563$af$0$cfc$9$f$89\_5$

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