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 offered 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 royalty 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.