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Question 1: Perkins Inc. produces and sells a single product. Following information pertains to the last year when the sales were 10,000 units: Sales $600,000
Question 1: Perkins Inc. produces and sells a single product. Following information pertains to the last year when the sales were 10,000 units: Sales $600,000 Direct materials $100,000 Direct labor $100,000 Electricity for the machines that produce the final product $20,000 (each unit of the final product goes through these machines) Factory rent $30,000 Sales commissions $40,000 Advertising (TV) $50,000 All other variable factory overhead $10,000 All other fixed factory overhead $25,000 All other variable selling and admn. expenses $5,000 All other fixed selling and admn. expenses $15,000 Required: a. b. What is the contribution margin per unit? What is the CM ratio? Compute the new operating income if sales increased by 25 percent. Assume that sales are at 10.000 units. Compute the company's break-even point in both units of product and dollars. How many units must the company sell in order to earn an income of $250.000? Refer to the original problem. Calculate the degree of operating leverage. If sales increases by 20%, by what is the % change in profit? Refer to the original problem. Assume that the company can only sell 9,000 units. What is the selling price the company must charge to earn an operating income of $50,000. c. d. e. Refer to the original problem. Now Perkins plans to introduce a new product that is expected to have a CM ratio of 0.60 and sales of 12,000 units. The fixed costs will increase BY $80,000 because of the new product. What will be the breakeven point in S for the overall company? (Hint: Think CM ratio! If you cannot get the answer, try to explain how the breakeven will change, for partial credits)
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