Pet food, Inc sells cat food and dog food Its monthly fixed costs average of $620,000 Cat food sales represent 80 of the company's total revenue Dog food sales constitute the remaining 20 The company has provided the following information expressed on a per case basis Selling Price Contribution Margin Cat food $40 $16 Dog food $30 $9 Answer the following question Management wants to know break even level sales How much revenue is needed to generate a monthly operating income of $135,000 What is the company's margin of safety at a monthly sales level of $2,500,000 If monthly fixed costs increase by $10,000, how much will the break even point, expressed in sales dollars, need to increase Bonus Question You are a newly hired financial analyst for this company You are concerned that management thinks that numbers and accounting is just black and white, just right or wrong, and you want to make sure management understands the underlying assumptions of this analysis Explain to management in simple, clear terms why the amounts you calculate may not ultimately be correct, i e , what assumptions and estimates go into this

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Posted on Jul 15, 2024

Pet food, Inc sells cat food and dog food. Its monthly fixed costs average of $620,000. Cat food sales represent 80% of the company's total

Pet food, Inc sells cat food and dog food. Its monthly fixed costs average of $620,000. Cat food sales represent 80% of the company's total revenue. Dog food sales constitute the remaining 20%. The company has provided the following information expressed on a per-case basis:

	Selling Price	Contribution Margin
Cat food	$40	$16
Dog food	$30	$9

Answer the following question -

Management wants to know break-even level sales.
How much revenue is needed to generate a monthly operating income of $135,000?
What is the company's margin of safety at a monthly sales level of $2,500,000?
If monthly fixed costs increase by $10,000, how much will the break-even point, expressed in sales dollars, need to increase?

Bonus Question - You are a newly-hired financial analyst for this company. You are concerned that management thinks that numbers and accounting is just black and white, just right or wrong, and you want to make sure management understands the underlying assumptions of this analysis. Explain to management in simple, clear terms why the amounts you calculate may not ultimately be correct, i.e., what assumptions and estimates go into this?