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Denbury Hospitality Products, Inc. is a small-sized food product manufacturer based in the Rocky Mountain regions of the US mid-west. The company started operations in
Denbury Hospitality Products, Inc. is a small-sized food product manufacturer based in the Rocky Mountain regions of the US mid-west. The company started operations in January 2005 and quickly gained a reputation for its highly popular birthday cakes, which the company sells for $500 each. The following information regarding estimated revenues and costs relating to the birthday cakes is taken from the company's budget for the year 2022: Net sales Direct materials Direct labour Manufacturing overhead - variable Manufacturing overhead - fixed $670,000 Selling expenses - variable $120,000 Selling expenses - fixed $39,000 Administrative expenses - variable $37,000 Administrative expenses - fixed $29,000 $24,000 $28,000 $14,000 $18,000 Required: 1. Assuming fixed costs and net sales are spread evenly throughout the year, calculate the company's monthly break-even point in (1) units and (2) dollars. 6 marks 2. Calculate the contribution margin ratio, the annual margin of safety ratio, and the annual profit. 6 marks 3. Assume the price remains at $500 per unit and variable costs remain the same per unit, but fixed costs increase by 20% annually. Calculate the percentage increase in unit sales required to achieve the same level of annual profit calculated in part (2). 4 marks 4. Return to the original cost estimates and determine the sales required to earn an operating income of $530000 after tax. The company's income tax rate is 30%. 4 marks
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