Goshen Company's contribution format income statement for the most recent month is given below Sales (26,000 units) $ 1,222,000 Variable expenses 855,400 Contribution margin 366,600 Fixed expenses 293,280 Net operating income $ 73,320 The industry in which Goshen Company operates is quite sensitive to cyclical movements in the economy Thus, profits vary considerably from year to year according to general economic conditions The company has a large amount of unused capacity and is studying ways of improving profits Required 1 New equipment has come on the market that would allow Goshen Company to automate a portion of its operations Variable expenses would be reduced by $9 40 per unit However, fixed expenses would increase to a total of $537,680 each month Prepare two contribution format income statements, one showing present operations and one showing how operations would appear if the new equipment is purchased (Round your Per unit answers to 2 decimal places ) 2 Refer to the income statements in (1) above For both present operations and the proposed new operations, Compute a The degree of operating leverage b The break even point in dollars c The margin of safety in both dollar and percentage terms 3 Refer again to the data in (1) above As a manager, what factor would be paramount in your mind in deciding whether to purchase the new equipment (Assume that ample funds are available to make the purchase ) Reserves and surplus of the company Stock level maintained Performance of peers in the industry Cyclical movements in the economy 4 Refer to the original data Rather than purchase new equipment, the marketing manager argues that the company's marketing strategy should be changed Instead of paying sales commissions, which are included in variable expenses, the marketing manager suggests that salespersons be paid fixed salaries and that the company invest heavily in advertising The marketing manager claims that this new approach would increase unit sales by 50 without any change in selling price the company's new monthly fixed expenses would be $366,600 and its net operating income would increase by 25 Compute the break even point in dollar sales for the company under the new marketing strategy Goshen Company's contribution format income statement for the most recent month is given below Sales (26,000 units) $ 1,222,000 Variable expenses 855,400 Contribution margin 366,600 Fixed expenses 293,280 Net operating income $ 73,320 The industry in which Goshen Company operates is quite sensitive to cyclical movements in the economy Thus, profits vary considerably from year to year according to general economic conditions The company has a large amount of unused capacity and is studying ways of improving profits Required 1 New equipment has come on the market that would allow Goshen Company to automate a portion of its operations Variable expenses would be reduced by $9 40 per unit However, fixed expenses would increase to a total of $537,680 each month Prepare two contribution format income statements, one showing present operations and one showing how operations would appear if the new equipment is purchased (Round your Per unit answers to 2 decimal places ) 2 Refer to the income statements in (1) above For both present operations and the proposed new operations, Compute a The degree of operating leverage b The break even point in dollars c The margin of safety in both dollar and percentage terms 3 Refer again to the data in (1) above As a manager, what factor would be paramount in your mind in deciding whether to purchase the new equipment (Assume that ample funds are available to make the purchase ) Reserves and surplus of the company Stock level maintained Performance of peers in the industry Cyclical movements in the economy 4 Refer to the original data Rather than purchase new equipment, the marketing manager argues that the company's marketing strategy should be changed Instead of paying sales commissions, which are included in variable expenses, the marketing manager suggests that salespersons be paid fixed salaries and that the company invest heavily in advertising The marketing manager claims that this new approach would increase unit sales by 50 without any change in selling price the company's new monthly fixed expenses would be $366,600 and its net operating income would increase by 25 Compute the break even point in dollar sales for the company under the new marketing strategy Threads Unlimited operates a chain of shirt stores that carry many styles of shirts that are all sold at the same price To encourage sales personnel to be aggressive in their sales efforts, the company pays a substantial sales commission on each shirt sold Sales personnel also receive a small basic salary The following worksheet contains cost and revenue data for Store 45 These data are typical of the company's many outlets Per Shirt Selling price $ 40 Variable expenses Invoice cost $ 22 Sales commission 4 Total variable expenses $ 26 Annual Fixed expenses Rent $ 110,000 Advertising 170,000 Salaries 70,000 Total fixed expenses $ 350,000 The company has asked you, as a member of its planning group, to assist in some basic analysis of its stores and company policies Required 1 Calculate the annual break even point in dollar sales and in unit sales for Store 45 (Do not round intermediate calculations ) 3 If 20,000 shirts are sold in a year, what would be Store 45's net operating income or loss (Do not round intermediate calculations Input the amount as a positive value ) 4 The company is considering paying the store manager of Store 45 an incentive commission of $6 per shirt (in addition to the salespersons' commissions) If this change is made, what will be the new break even point in dollar sales and in unit sales (Do not round intermediate calculations ) 5 Refer to the original data As an alternative to (4) above, the company is considering paying the store manager a $6 commission on each shirt sold in excess of the break even point If this change is made, what will be the stores net operating income or loss if 38,500 shirts are sold in a year (Do not round intermediate calculations Input the amount as a positive value )

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Aug 27, 2024

Goshen Company's contribution format income statement for the most recent month is given below: Sales (26,000 units) $ 1,222,000 Variable expenses 855,400 Contribution margin 366,600

Goshen Company's contribution format income statement for the most recent month is given below:


Sales (26,000 units)	$	1,222,000
Variable expenses		855,400

Contribution margin		366,600
Fixed expenses		293,280

Net operating income	$	73,320

The industry in which Goshen Company operates is quite sensitive to cyclical movements in the economy. Thus, profits vary considerably from year to year according to general economic conditions. The company has a large amount of unused capacity and is studying ways of improving profits.

*Required:*
1.	New equipment has come on the market that would allow Goshen Company to automate a portion of its operations. Variable expenses would be reduced by $9.40 per unit. However, fixed expenses would increase to a total of $537,680 each month. Prepare two contribution format income statements, one showing present operations and one showing how operations would appear if the new equipment is purchased. (Round your "Per unit" answers to 2 decimal places.)

2.	Refer to the income statements in (1) above. For both present operations and the proposed new operations, Compute:

a.	The degree of operating leverage.

b.	The break-even point in dollars.

c.	The margin of safety in both dollar and percentage terms.

Refer again to the data in (1) above. As a manager, what factor would be paramount in your mind in deciding whether to purchase the new equipment? (Assume that ample funds are available to make the purchase.)

	Reserves and surplus of the company
	Stock level maintained
	Performance of peers in the industry
	Cyclical movements in the economy

Refer to the original data. Rather than purchase new equipment, the marketing manager argues that the company's marketing strategy should be changed. Instead of paying sales commissions, which are included in variable expenses, the marketing manager suggests that salespersons be paid fixed salaries and that the company invest heavily in advertising. The marketing manager claims that this new approach would increase unit sales by 50% without any change in selling price; the company's new monthly fixed expenses would be $366,600; and its net operating income would increase by 25%. Compute the break-even point in dollar sales for the company under the new marketing strategy.

Goshen Company's contribution format income statement for the most recent month is given below:


Sales (26,000 units)	$	1,222,000
Variable expenses		855,400

Contribution margin		366,600
Fixed expenses		293,280

Net operating income	$	73,320

*Required:*
1.	New equipment has come on the market that would allow Goshen Company to automate a portion of its operations. Variable expenses would be reduced by $9.40 per unit. However, fixed expenses would increase to a total of $537,680 each month. Prepare two contribution format income statements, one showing present operations and one showing how operations would appear if the new equipment is purchased. (Round your "Per unit" answers to 2 decimal places.)

2.	Refer to the income statements in (1) above. For both present operations and the proposed new operations, Compute:

a.	The degree of operating leverage.

b.	The break-even point in dollars.

c.	The margin of safety in both dollar and percentage terms.

	Reserves and surplus of the company
	Stock level maintained
	Performance of peers in the industry
	Cyclical movements in the economy

Threads Unlimited operates a chain of shirt stores that carry many styles of shirts that are all sold at the same price. To encourage sales personnel to be aggressive in their sales efforts, the company pays a substantial sales commission on each shirt sold. Sales personnel also receive a small basic salary.

The following worksheet contains cost and revenue data for Store 45. These data are typical of the company's many outlets:

	Per Shirt
Selling price	$	40

Variable expenses:
Invoice cost	$	22
Sales commission		4

Total variable expenses	$	26

		Annual
Fixed expenses:
Rent	$	110,000
Advertising		170,000
Salaries		70,000

Total fixed expenses	$	350,000

The company has asked you, as a member of its planning group, to assist in some basic analysis of its stores and company policies.

*Required:*
1.	Calculate the annual break-even point in dollar sales and in unit sales for Store 45. (Do not round intermediate calculations.)

3.	If 20,000 shirts are sold in a year, what would be Store 45's net operating income or loss? (Do not round intermediate calculations. Input the amount as a positive value.)

4.	The company is considering paying the store manager of Store 45 an incentive commission of $6 per shirt (in addition to the salespersons' commissions). If this change is made, what will be the new break-even point in dollar sales and in unit sales? (Do not round intermediate calculations.)

Refer to the original data. As an alternative to (4) above, the company is considering paying the store manager a $6 commission on each shirt sold in excess of the break-even point. If this change is made, what will be the stores net operating income or loss if 38,500 shirts are sold in a year? (Do not round intermediate calculations. Input the amount as a positive value.)