Return to a 2. Change all of the numbers in the data area of your worksheet so that it looks like this: B C 1 Chapter 5: Applying Excel WN 3 Data 4 Unit sales 5 Selling price per unit 6 Variable expenses per unit 7 Fixed expenses 30,000 units $ 30 per unit $ 12 per unit $ 432,000 If your formulas are correct, you should get the correct answers to the following questions. (a) What is the break-even in dollar sales? Answer is complete and correct. Break-even in dollar salos $ 720,000 (b) What is the margin of safety percentage? Answer is complete and correct. Margin of safety percentage 20 % (c) What is the degree of operating leverage? (Round your answer to 2 decimal places.) Answer is complete and correct. Degree of operating leverage 5.00 3. Using the degree of operating leverage and without changing anything in your worksheet, calculate the percentage change in net operating income if unit sales increase by 20%. Answer is complete but not entirely correct. Percentage increase in net operating income 80 % 4. Confirm your calculations in Requirement 3 above by increasing the unit sales in your worksheet by 20% so that the Data area looks like this: B A Chapter 5: Applying Excel 1 4 5 Data Unit sales Selling price per unit Variable expenses per unit Fixed expenses 36,000 units $ 30 per unit $ 12 per unit $ 432,000 6 7 Required information 5 6 (a) What is net operating income? (Negative amount should be indicated by a minus sign.) Answer is complete and correct. Net operating income (loss) $ 216,000 (b) By what percentage did the net operating income increase? Percentage increase in net operating income % 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 5. Thad Morgan, a motorcycle enthusiast, has been exploring the possibility of relaunching the Western Hombre brand of cycle that was popular in the 1930s. The retro-look cycle would be sold for $18,000 and at that price, Thad estimates 500 units would be sold each year. The variable cost to produce and sell the cycles would be $13,500 per unit. The annual fixed cost would be $1,800,000 a. What is the break-even in unit sales? 38 Break-even in unit sales 39 40 41 42 43 44 45 46 47 48 49 b. What is the margin of safety in dollars? b. What is the margin of safety in dollars? Margin of safety in dollars c. What is the degree of operating leverage? (Round your answer to 2 decimal places.) Degree of operating leverage Thad is worried about the selling price. Rumors are circulating that other retro brands of cycles may be revived. If so, the selling price for the Western Hombre would have to be reduced to $15,000 to compete effectively. In that event, Thad would also reduce fixed expenses to $1,458,000 by reducing advertising expenses, but he still hopes to sell 500 units per year. d. What would the net operating income be in this situation? (Negative amount should be indicated by a minus sign.) Net operating Income (loss) B B C 1 Chapter 5: Applying Excel 2 3 Data Unit sales 5 Selling price per unit 36,000 units s Variable expenses per unit $30 per unit Fixed expenses $12 per unit $432,000 3 Enter a formula into each of the cells marked with a ? below 0 Review Problem: CVP Relationships 1 2 Compute the CM ratio and variable expense ratio 3 Selling price per unit $30 per unit 4 Variable expenses per unit 12 per unit s Contribution margin per unit $18 per unit 16 7 CM ratio 60% 3 Variable expense ratio 40% 9 Compute the break-even 1 Break-even in unit sales 24,000 units 2 Break-even in dollar sales $720,000 3 4 Compute the margin of safety 5 Margin of safety in dollars $360,000 6 Margin of safety percentage 33% 7 3 Compute the degree of operating leverage 9 Sales $ 1,080,000 o Variable expenses 432,000 1 Contribution margin 648,000 2 Fixed expenses $432.000 3 Net operating income $216.000 4 3.00 5 Degree of operating leverage 6 7
