Managerial Accounting: Chapter 6 Cost-Volume-Profit Relationships

Excel Assignment

The answers I am having difficulty finding are 4, 5, 6, and 7. I have included The answers to 1, 2, and 3.

Excel Assignment #4 Spring Vice President for Sales and Marketing Sam Totter is trying to plan for the coming year in terms of production needs to meet the sales demand. He is also trying to determine ways in which the company's profits might be increased in the coming year. Instructions (Do all six parts): Northern Illinois Manufacturing markets a simple water control and timer that it mass- produces. During the past year, the company sold 701,000 units at an average selling price of 4.25 per unit. The variable expenses were $2,039,910 and the fixed expenses were $693,340. 1. What is the product's contribution margin ratio? (Round to nearest whole percentage.) 2. What is the company's break-even point in units and in dollars for this product? 3. What is the margin of safety, both in dollars and as a ratio? (Round to nearest whole percentage.) 4. If management wanted to increase its net operating income from this product by 10%, how many additional units would have to be sold to reach this income level? 5. If sales increase by 60,000 units and the cost behaviors do not change, how much will net operating income increase on this product? 6. Northern Illinois' management believes that increased advertising would increase unit sales by 10%. If management wants to increase its operating income by $50,000, how much could the company spend on additional advertising to reach its goal? 7. Using last year's data as the starting point, assume the company can increase sales by 5% by just continuing its current marketing program. What would the company's net operating income be next year using the DOL? Income Statement Sales Revenue (701,000 units @ $4.25) Variable expense Contribution Margin (Sales - Variable Cost) Fixed Expense Net Operating Income Total 29,79,250 -20,39,9101 9,39,340 -6,93,340 2,46,000 Per unit 4.25 -2.91 1.34 1) Computation of product's Contribution Margin Ratio Contribution Margin Ratio = (Contribution Margin / Sales Revenue) *100 = (939,340 / 2,979,250)*100 = 31.53 or 32% 2) Computation of Company's Break-even point in Units & in Dollars Break-even Point = Fixed Expenses / Contribution margin per unit (in Units) = 693,340 / 1.34 = 517,418 Units Break-even Point (in Dollars) = Fixed Expenses / Contribution margin ratio = 693,340 / 32% = $ 2,166,688 3) Computation of Margin of Safety in Dollars & as in Ratio Margin of Safety = Sales Revenue - Break-even Point in Dollars (in Dollars) = $2,979,250 - $2,166,688 = $812,562 Margin of Safety (in Ratio) = (Margin of Safety in Dollars / Sales Revenue)*100 = (812,562/2,979,250)*100 = 27.27 or 27%