Question 4:

Super Sales Company is the exclusive distributor for a revolutionary bookbag. The product sells for $60 per unit and has a CM ratio of 40%. The companys fixed expenses are $360,000 per year.

Requirements: Marks 1+2+2+2+2+2=11)

a. Compute the companys variable expense per unit?

b. Compute the companys break-even point in both units and sales dollars. [Use equation method]

c. Assume that through negotiation with the manufacturer the Super Sales Company is able to reduce its variable expenses by $3 per unit. What is the companys new break-even point in units and in sales dollars?

[Use formula method]

d. Assume that sales increase by $400,000 next year. If cost behavior patterns remain unchanged, by how much will the companys net operating income increase?

e. Refer to the original data. Compute the companys margin of safety in both dollar and percentage form. [Consider Actual (budgeted) sales $12,00,000]

f. Refer to the original data, calculate the degree of operating leverage.