Belli

-

Pitt, Inc, produces a single product. The results of the company's

operations for a typical month are

summarized in contribution format as follows:

Sales

................................

...

$540,000

Variable expenses

..............

360,000

Contribution margin

..........

180,000

Fixed expenses

..................

120,000

Net operating income

........

$

60,000

The company produced and sold 120,000 kilograms of product during the month. There were no

beginning or ending inventories.

Required:

a.

Given the present situation, compute

1.

The break

-

even sales in kilograms.

2.

The break

-

even sales in dollars.

3.

The

sales in kilograms that would be required to produce net operating income of

$90,000.

4.

The margin of safety in dollars.

b.

An important part of processing is performed by a machine that is currently being leased for

$20,000 per month. Belli

-

Pitt has been of

fered an arrangement whereby it would pay $0.10

royalty per kilogram processed by the machine rather than the monthly lease.

1.

Should the company choose the lease or the royalty plan?

2.

Under the royalty plan compute break

-

even point in kilograms.

3.

Under the ro

yalty plan compute break

-

even point in dollars.

4.

Under the royalty plan determine the sales in kilograms that would be required to

produce net operating income of $90,000.