EXERCISE 5-2 Prepare a Cost-Volume-Profit (CVP) Graph C LO5-2 Karlik Enterprises distributes a single product whose selling price is $24 per unit and whose variable expense is $18 per unit. The company's monthly fixed expense is $24,000. Required: 1. Prepare a cost-volume-profit graph for the company up to a sales volume of 8,000 units. 2. Estimate the company's break-even point in unit sales using your cost-volume-profit graph.Last month when Holiday Creations, Inc., sold 50,000 units, total sales were $200,000, total variable expenses were $120,000, and xed expenses were $65,000. Required: 1. What is the company's contribution margin (CM) ratio? 2. What is the estimated change in the company's net operating income if it can increase sales volume by 250 units and total sales by $ 1,000? Data for Hermann Corporation are shown below: Per Unit Percent of Sales Selling price $90 100% Variable expenses 7_0 Contribution margin $4 2% Fixed expenses are $30,000 per month and the company is selling 2,000 units per month. Required: Page 221 1. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $5,000, the monthly sales volume increases by 100 units, and the total monthly sales increase by $9,000? 2. Refer to the original data. How much will net operating income increase (decrease) per month if the company uses higher-quality components that increase the variable expense by $2 per unit and increase unit sales by 10%. EXERCISE 56 Break-Even Analysis L055 Mauro Products distributes a single product, a woven basket whose selling price is $15 per unit and whose variable expense is $12 per unit. The company's monthly xed expense is $4,200. Required: 1. Calculate the company's break-even point in unit sales. 2. Calculate the company's break-even point in dollar sales. 3. If the company's xed expenses increase by $600, what would become the new break-even point in unit sales? In dollar sales? EXERCISE 57 Target Profit Analysis LO56 Lin Corporation has a single product whose selling price is $120 per unit and whose variable expense is $80 per unit. The company's monthly xed expense is $50,000. Required: 1. Calculate the unit sales needed to attain a target prot of $10,000. 2. Calculate the dollar sales needed to attain a target prot of $15,000. EXERCISE 58 Compute the Margin of Safety L057 Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month's budget appear below: Selling price per unit $30 Variable expense per unit $20 Fixed expense per month $7,500 Unit sales per month 1,000 Required: 1. What is the company's margin of safety? 2. What is the company's margin of safety as a percentage of its sales? EXERCISE 59 Compute and Use the Degree of Operating Leverage L058 Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement ' follows: Amount Percent of Sales Sales $80,000 100% Variable expenses 32,000 01) Contribution margin 48,000 % Fixed expenses 38,000 Net operating income $10,000 Required: 1. What is the company's degree of operating leverage? 2. Using the degree of operating leverage, estimate the impact on net operating income of a 5% increase in unit sales. 3. Verify your estimate from part (2) above by constructing a new contribution format income statement for the company assuming a 5% increase in unit sales. Page 222 EXERCISE 510 Multiproduct Break-Even Analysis L059 Lucido Products markets two computer games: Claimjumper and Makeover. A contribution format income statement for a recent month for the two games appears below: Claimjumper Makeover Total Sales $30,000 $70,000 $100,000 Variable expenses 20,000 50,000 70,000 Contribution margin W $20,000 30,000 Fixed expenses 24,000 Net operating income 35 6,000 Required: 1. What is the overall contribution margin (CM) ratio for the company? 2. What is the company's overall break-even point in dollar sales? 3. Verify the overall break-even point for the company by constructing a contribution format income statement showing the appropriate levels of sales for the two products. Fill in the missing amounts in each of the eight case situations below. Each case is independent of the others. (Him: One way to nd the missing amounts would be to prepare a contribution format income statement for each case, enter the known data, and then compute the missing items.) a, Assume that only one product is being sold in each of the four following case situations: Contribution Net Operating Units Variable Margin Fixed Income Case Sold Sales Expenses per Unit Expenses (Loss) 1 15,000 $180,000 $120,000 ? $50,000 ? 2 ? $100,000 ? $10 $32,000 $8,000 3 10,000 ? $70,000 $13 7 $12,000 4 6,000 $300,000 ? ? $100,000 $(10,000) b, Assume that more than one product is being sold in each of the four following case situations: Average Contribution Net Operating Variable Margin Fixed Income Case Sales Expenses Ratio Expenses (Loss) 1 $500,000 ? 20% ? $7,000 2 $400,000 $260,000 ? $100,000 ? 3 ? ? 60% $130,000 $20,000 4 $600,000 $420,000 ? ? $(5,000)