Hightech Company recently developed the technology necessary to produce a low-end, a medium-end, and high-end computer memory chip for heart monitoring healthcare equipment. Budgeted fixed costs for the manufacture of all three products total $4,250,000. Budgeted sales, by product and in total, for the coming year were as follows: 

Economy Standard High

Amount Percent Amount Percent Amount Percent

Sales $1,750,000 100% $4,000,000 100% $2,500,000 100%

Variable costs $1,207,500 69% $1,000,000 25% $1,250,000 50%

Contribution $542,500 31% $3,000,000 75% $1,250,000 50%

Actual sales for the year were as follows:

Economy $4,000,000

Standard $2,250,000

High $2,000,000

Total sales $8,250,000

Required:

1. Prepare a contribution income statement for the year based on actual sales data (but budgeted cost data, for both variable and fixed costs).

2. Compare the breakeven sales dollars for the year based on both budgeted sales and on actual sales, assuming that the sales mix remains constant in terms of sales dollars. (Round contribution margin ratios, in all calculations, to three decimal places. Round answer in dollars up, to the nearest whole number.)

3. The company president knows that total actual sales were $8,250,000 for the year, the same as budgeted. Because she had seen the budgeted income statement, she was expecting a nice profit from producing the memory chips. Explain to her what happened.

Q2

The Subway Sandwich Shop, Inc. is seeking to sell new franchises for its business. The company is in the process of developing a business plan to present to potential investors. Following are various projected cost data for a typical sandwich shop:

Lease of store space $500/month

Equipment lease $500/month

License $240/year

Advertising 2.5% gross sales revenue

Royalty 8% of gross sales revenue

Salaries $2,000/month

Utilities $400/month

Insurance $1,500/year

The average order (sandwich) sells for $4, with food cost of $2.

Required:

1. What is the contribution of each order (sandwich) toward covering fixed expenses?

2. What is the projected monthly breakeven point in units (round your answer up, to nearest whole unit)?

3. A potential franchisee has a targetbefore-taxprofit (_B) of $2,000 per month. What level of sales (in units and in dollars, per month) must be achieved to meet the franchisee's profit goal (round up, to nearest whole unit)?

4. This potential franchisee has a targetafter-taxprofit (_A) of $1,800 per month. To achieve this profit objective, what level of sales (in units and in dollars, per month) must be achieved if the tax rate,t, is 35% (roundup to nearest whole unit)?

5. What is the degree of operating leverage (DOL) of a typical sandwich shop at the volume level needed to achieve a targeted before-tax profit (i.e., an operating income) of $2,000 per month? Round your answer to 2 decimal places.

6. From the sales volume level needed to achieve the monthly pre-tax profit (_B) goal of $2,000, what would be the percentage change in _Bif sales increased by 5%?