Problem 1.

The following monthly budgeted data are available for a wholesale company:

Product LProduct ZProduct C Sales$400,000$200,000$800,000 Variable expenses240,000140,000640,000 Contribution margin$160,000$ 60,000$160,000

Budgeted net operating income for the month is $130,000.

Required:

a.Calculate the break-even sales for the month.

b.Calculate the margin of safety in sales dollars.

c.Calculate the operating leverage for both budgeted and actual data.

d.Actual total sales for the month were the same as the budgeted sales--$1,400,000. However, the sales mix changed so that sales by product were: L, $560,000; Z, $280,000; C, $560,000. Calculate the expected net operating income with this new sales mix. Explain why this net operating income figure differs from the original budgeted net operating income of $130,000.