Part B: Cost-Volume-Profit Analysis

Belli-Pitt, Inc, produces a single product. The results of the company's operations for a typical month are summarized in contribution format as follows:

Sales................................... Variable expenses.............. Contribution margin .......... Fixed expenses .................. Net operating income ........

$540,000 360,000 180,000 120,000

$ 60,000

The company produced and sold 120,000 kilograms of product during the month. There were no beginning or ending inventories.

Required:

1. Given the present situation, compute
2. The break-even sales in kilograms.
3. The break-even sales in dollars.
4. The sales in kilograms that would be required to produce net operating income of
5. $90,000.
6. The margin of safety in dollars.
7. An important part of processing is performed by a machine that is currently being leased for $20,000 per month. Belli-Pitt has been offered an arrangement whereby it would pay $0.10 royalty per kilogram processed by the machine rather than the monthly lease.
8. Should the company choose the lease or the royalty plan?
9. Under the royalty plan compute break-even point in kilograms.
10. Under the royalty plan compute break-even point in dollars.
11. Under the royalty plan determine the sales in kilograms that would be required to
12. produce net operating income of $90,000.