Exercise 6-1 The Effect of Changes in Activity on Net Operating Income [LO6-1) Whirly Corporation's contribution format income statement for the most recent month is shown below: Sales (8,000 units) Variable expenses Contribution margin Fixed expenses Net operating income Total $ 280,000 144,000 136,000 54,900 $ 81,100 Per Unit $ 35.00 18.00 $ 17.00 Required: (Consider each case independently): 1. What would be the revised net operating income per month if the sales volume increases by 80 units? 2. What would be the revised net operating income per month if the sales volume decreases by 80 units? 3. What would be the revised net operating income per month if the sales volume is 7,000 units? 1. Revised net operating income 2 Revised net operating income 3. Revised net operating income Exercise 6-4 Computing and Using the CM Ratio (LO6-3] Last month when Holiday Creations, Inc., sold 40,000 units, total sales were $300,000, total variable expenses were $234,000, and fixed expenses were $39,500. 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 total sales by $2,200? (Do not round intermediate calculations.) % 1. Contribution margin ratio 2. Estimated change in net operating income Data for Hermann Corporation are shown below: Selling price Variable expenses Contribution margin Per Unit $ 110 77 $ 33 Percent of Sales 100% 70 308 Fixed expenses are $82,000 per month and the company is selling 3,500 units per month. Exercise 6-5 Part 1 Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,700 and monthly sales increase by $19,800? 1-b. Should the advertising budget be increased? Complete this question by entering your answers in the tabs below. Req 1A Reg 1B How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,700 and monthly sales increase by $19,800? (Round any unit calculations up to the nearest whole unit.) Net operating income by Data for Hermann Corporation are shown below: Selling price Variable expenses Contribution margin Per Unit $ 110 77 $ 33 Percent of Sales 100% 70 30% Fixed expenses are $82,000 per month and the company is selling 3,500 units per month. Exercise 6-5 Part 1 Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,700 and monthly sales increase by $19,800? 1-b. Should the advertising budget be increased? Complete this question by entering your answers in the tabs below. Req 1A Req 1B Should the advertising budget be increased? Yes No Exercise 6-6 Break-Even Analysis (LO6-5] Mauro Products distributes a single product, a woven basket whose selling price is $11 per unit and whose variable expense is $8 per unit. The company's monthly fixed expense is $7,800. Required: 1. Calculate the company's break-even point in unit sales. 2. Calculate the company's break-even point in dollar sales. (Do not round intermediate calculations.) 3. If the company's fixed expenses increase by $600, what would become the new break-even point in unit sales? In dollar sales? (Do not round intermediate calculations.) baskets 1. Break-even point in unit sales 2. Break-even point in dollar sales 3. Break-even point in unit sales Break-even point in dollar sales baskets Exercise 6-7 Target Profit Analysis (LO6-6] Lin Corporation has a single product whose selling price is $136 per unit and whose variable expense is $68 per unit. The company's monthly fixed expense is $31,650. Required: 1. Calculate the unit sales needed to attain a target profit of $5,750. (Do not round intermediate calculations.) 2. Calculate the dollar sales needed to attain a target profit of $9,900. (Round your intermediate calculations to the nearest whole number.) units 1. Units sales to attain target profit 2. Dollar sales to attain target profit Exercise 6-8 Compute the Margin of Safety (LO6-7) 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 Variable expense per unit Fixed expense per month Unit sales per month $ 28 $ 14 $ 12,460 1,040 Required: 1. What is the company's margin of safety? (Do not round intermediate calculations.) 2. What is the company's margin of safety as a percentage of its sales? (Round your percentage answer to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) 1. Margin of safety (in dollars) 2. Margin of safety percentage % The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical costs of the hotel and the number of occupancy-days over the last year. An occupancy-day represents a room rented for one day. The hotel's business is highly seasonal, with peaks occurring during the ski season and in the summer. Month January February March April May June July August September October November December Occupancy-Days 2,630 3,130 3,640 1,090 1,770 1,730 4,440 3,860 2,170 1,210 1,790 2,930 Electrical Costs $10,783 $12,833 $13,583 $ 4,469 $ 7,257 $ 7,093 $14,854 $13,815 $ 8,897 $ 4,961 $ 7,339 $12,013 Required: 1. Using the high-low method, estimate the fixed cost of electricity per month and the variable cost of electricity per occupancy-day (Do not round your intermediate calculations. Round your Variable cost answer to 2 decimal places and Fixed cost elemen answer to nearest whole dollar amount.) Variable cost of electricity Fixed cost of electricity per occupancy-day per month Exercise 6-1 The Effect of Changes in Activity on Net Operating Income [LO6-1) Whirly Corporation's contribution format income statement for the most recent month is shown below: Sales (8,000 units) Variable expenses Contribution margin Fixed expenses Net operating income Total $ 280,000 144,000 136,000 54,900 $ 81,100 Per Unit $ 35.00 18.00 $ 17.00 Required: (Consider each case independently): 1. What would be the revised net operating income per month if the sales volume increases by 80 units? 2. What would be the revised net operating income per month if the sales volume decreases by 80 units? 3. What would be the revised net operating income per month if the sales volume is 7,000 units? 1. Revised net operating income 2 Revised net operating income 3. Revised net operating income Exercise 6-4 Computing and Using the CM Ratio (LO6-3] Last month when Holiday Creations, Inc., sold 40,000 units, total sales were $300,000, total variable expenses were $234,000, and fixed expenses were $39,500. 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 total sales by $2,200? (Do not round intermediate calculations.) % 1. Contribution margin ratio 2. Estimated change in net operating income Data for Hermann Corporation are shown below: Selling price Variable expenses Contribution margin Per Unit $ 110 77 $ 33 Percent of Sales 100% 70 308 Fixed expenses are $82,000 per month and the company is selling 3,500 units per month. Exercise 6-5 Part 1 Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,700 and monthly sales increase by $19,800? 1-b. Should the advertising budget be increased? Complete this question by entering your answers in the tabs below. Req 1A Reg 1B How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,700 and monthly sales increase by $19,800? (Round any unit calculations up to the nearest whole unit.) Net operating income by Data for Hermann Corporation are shown below: Selling price Variable expenses Contribution margin Per Unit $ 110 77 $ 33 Percent of Sales 100% 70 30% Fixed expenses are $82,000 per month and the company is selling 3,500 units per month. Exercise 6-5 Part 1 Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,700 and monthly sales increase by $19,800? 1-b. Should the advertising budget be increased? Complete this question by entering your answers in the tabs below. Req 1A Req 1B Should the advertising budget be increased? Yes No Exercise 6-6 Break-Even Analysis (LO6-5] Mauro Products distributes a single product, a woven basket whose selling price is $11 per unit and whose variable expense is $8 per unit. The company's monthly fixed expense is $7,800. Required: 1. Calculate the company's break-even point in unit sales. 2. Calculate the company's break-even point in dollar sales. (Do not round intermediate calculations.) 3. If the company's fixed expenses increase by $600, what would become the new break-even point in unit sales? In dollar sales? (Do not round intermediate calculations.) baskets 1. Break-even point in unit sales 2. Break-even point in dollar sales 3. Break-even point in unit sales Break-even point in dollar sales baskets Exercise 6-7 Target Profit Analysis (LO6-6] Lin Corporation has a single product whose selling price is $136 per unit and whose variable expense is $68 per unit. The company's monthly fixed expense is $31,650. Required: 1. Calculate the unit sales needed to attain a target profit of $5,750. (Do not round intermediate calculations.) 2. Calculate the dollar sales needed to attain a target profit of $9,900. (Round your intermediate calculations to the nearest whole number.) units 1. Units sales to attain target profit 2. Dollar sales to attain target profit Exercise 6-8 Compute the Margin of Safety (LO6-7) 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 Variable expense per unit Fixed expense per month Unit sales per month $ 28 $ 14 $ 12,460 1,040 Required: 1. What is the company's margin of safety? (Do not round intermediate calculations.) 2. What is the company's margin of safety as a percentage of its sales? (Round your percentage answer to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) 1. Margin of safety (in dollars) 2. Margin of safety percentage % The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical costs of the hotel and the number of occupancy-days over the last year. An occupancy-day represents a room rented for one day. The hotel's business is highly seasonal, with peaks occurring during the ski season and in the summer. Month January February March April May June July August September October November December Occupancy-Days 2,630 3,130 3,640 1,090 1,770 1,730 4,440 3,860 2,170 1,210 1,790 2,930 Electrical Costs $10,783 $12,833 $13,583 $ 4,469 $ 7,257 $ 7,093 $14,854 $13,815 $ 8,897 $ 4,961 $ 7,339 $12,013 Required: 1. Using the high-low method, estimate the fixed cost of electricity per month and the variable cost of electricity per occupancy-day (Do not round your intermediate calculations. Round your Variable cost answer to 2 decimal places and Fixed cost elemen answer to nearest whole dollar amount.) Variable cost of electricity Fixed cost of electricity per occupancy-day per month