Question
Last year, Ace Company sold 650,000 containers of flash-frozen fish for $75 each. Variable costs were $44 per container and fixed costs totaled $14,500,000. Required
Last year, Ace Company sold 650,000 containers of flash-frozen fish for $75 each. Variable costs were $44 per container and fixed costs totaled $14,500,000.
Required
a) In general, explain the differences between a contribution and a functional income statement.
b) For the company in this example, prepare a contribution income statement for last year.
c). For the company in this example, determine last year's operating leverage.
d) For the company in this example, calculate the percentage change in profits if sales decrease by 10%
e). Management of the company in this example is considering the purchase of several new pieces of packaging equipment. This will increase annual fixed costs to $15,700,000 and reduce variable costs to $40 per container. Calculate the effect of this acquisition on operating leverage and explain any change.
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