PART A.

No Slip

Co. produces sports socks. The company has fixed costs of

$85,680

and variable costs of

$0.68

per package. Each package sells for

$1.70.

Requirements

1.	Compute the contribution margin per package and the contribution margin ratio. (Round your answers to two decimal places.)
2.	Find the breakeven point in units and in dollars, using the contribution margin approach.

Requirement 1. Compute the contribution margin per package and the contribution margin ratio.

Begin by selecting the labels and entering the amounts to compute the contribution margin per package. (Round all amounts to two decimal places. Abbreviation used: CM = contribution margin.)

(1)	-	(2)	=	CM per unit
	-		=

Now select the labels and enter the amounts to calculate the contribution margin ratio. (Enter amounts in the formula to two decimal places. Enter the contribution margin ratio as a whole percentage, X%. Abbreviation used: CM = contribution margin.)

(3)		(4)	=	CM ratio
			=		%

Requirement 2. Find the breakeven point in units and in dollars, using the contribution margin approach.

Begin by selecting the labels and entering the amounts to find the breakeven point in units, using the contribution margin approach. (Enter amounts in the formula to two decimal places. Enter a "0" for any zero amounts. Abbreviation used: CM = contribution margin.)

(	(5)	+	(6)	)	(7)	=	Required sales in units
(		+		)		=

Now find the breakeven point in dollars using the contribution margin approach. Begin by selecting the formula, and in the next step, enter the amounts and calculate breakeven point in dollars. (Enter a "0" for any zero amounts.)

(

(8)

+

(9)

)

(10)

=

Required sales in dollars

(

+

)

%

=

(1)

Fixed costs

Net sales revenue per unit

Operating income

Total variable cost

Variable costs per unit

(2)

Fixed costs

Net sales revenue per unit

Operating income

Total variable cost

Variable costs per unit

(3)

CM per unit

Fixed costs

Net sales revenue per unit

Operating income

Total variable cost

Variable costs per unit

(4)

CM per unit

Fixed costs

Net sales revenue per unit

Operating income

Total variable cost

Variable costs per unit

(5)

CM per unit

CM ratio

Fixed costs

Sales price

Variable costs

(6)

CM per unit

CM ratio

Sales price

Target profit

Variable costs

(7)

CM per unit

CM ratio

Fixed costs

Sales price

Variable costs

(8)

CM per unit

CM ratio

Fixed costs

Sales price

Variable costs

(9)

CM per unit

CM ratio

Sales price

Target profit

Variable costs

(10)

CM per unit

CM ratio

Fixed costs

Sales price

Variable costs

PART B.

The

Table

Clock Company sells a particular clock for

$40.

The variable costs are

$19

per clock and the breakeven point is

210

clocks. The company expects to sell

260

clocks this year. If the company actually sells

400

clocks, what effect would the sale of additional

140

clocks have on operating income? Explain your answer.

The sale of an additional 140 clocks would	(1)	operating income by the amount of
(2)	The total effect would amount to			.

(1)

increase

decrease

(2)

the additional contribution margin.

the income that exceeds fixed costs.

the increase in units sold.

the revenue that exceeds the breakeven point.

PART C.

Robert's

Repair Shop has a monthly target profit of

$21,000.

Variable costs are

40%

of sales, and monthly fixed costs are

$27,000.

Requirements

1. Compute the monthly margin of safety in dollars if the shop achieves its income goal.

2. Express

Robert's

margin of safety as a percentage of target sales.3. Why would

Robert's

management want to know the shop's margin of safety?

Requirement 1. Compute the monthly margin of safety in dollars if the shop achieves its income goal.

Select the labels and enter the amounts to compute

Robert's

Repair Shop's monthly margin of safety in dollars.

(1)	-	(2)	=	Margin of safety in dollars
	-		=

Requirement 2. Express

Robert's

margin of safety as a percentage of target sales. (Enter your answer as a whole percent.)

The margin of safety as a percentage of target sales is:

%.

Requirement 3. Why would

Robert's

management want to know the shop's margin of safety?Managers can use margin of safety to assess the

(3)

to the company when there is a possibility of

(4)

Making this assessment helps managers

(5)

(1)

Breakeven sales in dollars

Breakeven sales in units

Contribution margin

Operating income

Target sales in dollars

Target sales in units

(2)

Breakeven sales in dollars

Breakeven sales in units

Contribution margin

Operating income

Target sales in dollars

Target sales in units

(3)

benefits

disadvantages

risk

(4)

a change in target sales.

a large decrease in sales.

higher than expected operating income.

(5)

accurately calculate a product's contribution margin.

choose a realistic target profit.

make informed decisions.