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Question 2 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:

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Question 2 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 Less: variable expenses Contribution margin Less: fixed expenses 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 (Each of these are separate situations): a) Given the present situation, compute: i. The break-even sales in kilograms. ii. The break-even sales in dollars. iii. The sales in kilograms that would be required to produce operating income of $90,000. iv. The margin of safety in dollars. b) Given the present situation, compute the sales in kilograms that would be required to produce after-tax operating income of $90,000, if the tax rate is 20%. c) 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. 1. Should the company choose the lease or the royalty plan? II. Under the royalty plan, compute the break-even point in kilograms. III. Under the royalty plan, compute the break-even point in dollars. Under the royalty plan, determine the sales in kilograms that would be required to produce operating income of $90,000. V. What are at least two non-financial consideration that should also be included in this decision? IV

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