Hi All,

Tran Corp started in business on 1/1/2014. The company produces golf clubs which it expects to sell for $80 per unit. The accountant has produced the following forecast income statement for 2014 using absorption costing:

Tran Corp: Absorption costing income statement for 2014	$
Sales revenue (5,000 clubs @ $80 per unit	400,000
Variable cost of goods sold: direct materials & labor (5,000 clubs @ $26 per unit)	(130,000)
Fixed cost of goods sold*	(20,000)
Gross profit	250,000
Sales commissions ($12 for each club sold)	(60,000)
Administrative salaries	(70,000)
Advertising expenses	(30,000)
Shipping and handling expense (5,000 clubs @ $2 per unit)	(10,000)
Net income	80,000

* The fixed cost of goods sold is an allocation for the companys fixed manufacturing overheads. The total fixed manufacturing overhead for 2014 is estimated at $20,000 and is allocated to products using the total units produced. The company expects to produce and sell 5,000 clubs during 2014.

Required: a) Using the information above, prepare a revised income statement for 2014 using a contribution margin-based variable costing format (hint: you need to identify contribution margin by reclassifying costs according to whether they are variable or fixed in nature).

b) Using your answer from part a), calculate Trans operating leverage.

c) Using your operating leverage calculation from part b), determine the total net income that Tran will earn if sales revenue increases by 30%

d) Using the original question data, calculate the companys contribution margin per unit

e) Calculate the companys break-even point in units and total sales dollars.

f) How many units must be sold during 2014 to earn a net income of $40,000?

Thank You!