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Hi, need help with cost according homework Problem 4-42 Contribution Margin, Break-Even Units, Break-Even Sales, Margin of Safety, Degree of Operating Leverage Aldovar Company produces
Hi, need help with cost according homework
Problem 4-42 Contribution Margin, Break-Even Units, Break-Even Sales, Margin of Safety, Degree of Operating Leverage
Aldovar Company produces a variety of chemicals. One division makes reagents for laboratories. The divisions projected income statement for the coming year is:
Sales (203,000 units @ $70) | $14,210,000 |
Total variable cost | 8,120,000 |
Contribution margin | $ 6,090,000 |
Total fixed cost | 4,945,500 |
Operating income | $ 1,144,500 |
Required:
- 1.Compute the contribution margin per unit, and calculate the break-even point in units (Note: Round answer to the nearest unit.) Calculate the contribution margin ratio and use it to calculate the break-even sales revenue. (Note: Round contribution margin ratio to four significant digits, and round the break-even sales revenue to the nearest dollar.)
- 2.The divisional manager has decided to increase the advertising budget by $250,000. This will increase sales revenues by $1 million. By how much will operating income increase or decrease as a result of this action?
- 3.Suppose sales revenues exceed the estimated amount on the income statement by $1,500,000. Without preparing a new income statement, by how much are profits underestimated?
- 4.Compute the margin of safety based on the original income statement.
- 5.Compute the degree of operating leverage based on the original income statement. If sales revenues are 8% greater than expected, what is the percentage increase in operating income? (Note: Round operating leverage to two decimal places.)
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