Question 6 e and f

5) Base scenario calculations: Using the Profit Formula calculated in 5) above, calculate the following assuming TrucBeat produces and sells 6,000 units as their "base" scenario Sales Revenue 6,00 SIL - 3.045,00 Net Operating Income 1,778. Ob Contribution Margin 2.052/ Contribution Margin Contribution Margin percent 2.082,0/3,091,00 87.252 Break-even in units 304,0*/62087, 00/000304,00) 347 976 units Break-even in dollars 3040/67.25 452,046 Margin of safety in units 6.400- 76+ 5.124 wnik Margin of safety percent (3.06,0 - 452,04 53/3916000 = 15.40 Margin of safety in dollars 3.0,000 -452,045 2,643,755 Degree of Operating Leverage 2,022,000 / 1.778.000 1.17 Looking at changes: TrueBeat is not confident their expenses will hold in year 4. Management wants to cxamine the potential impact of the following situations. Assume cach situation independent of one another. The Profit Formula and 6,000 units produced and sold for Year 4 as your "base scenario. 6) Increase to costs: The production manager is anticipating inflation and other increase that will result in total variable expenses increasing by 20%. a) What will the new profit formula be? Net Profit C Net sales - Lost of Production) b) What will the CM ratio and Break-Even point in units be with the labor increase? Note - Requirement asks for CM ratio, NOT contribution margin in dollars or contribution per unit. Total Sals: 5 16 > 1000 516,000 Variable costa 33,000+ (as* too units) - $58,000 CM ratio 516,000 - 58,000 2=0.88 DO Break ben Point 415,000/ (516-5): c) If they produce and sell the same number of units for Year 4, what will their new Net Operating 906 Income, NOI, be? 516,000 - 415,000 - 58,000 = 43,000 d) How many units will TrueBeat need to sell to maintain the same operating income as originally planned for Year 4? 1000 units e) Assume TrueBeat Company need to make a minimum profit of $1,000,000 to keep its creditors and investors happy. What minimum sales price will they need to charge if they produce and sell 6,000 units? Hint: Remember that CM = Sales price - Variable expenses. Conclusion: Use your calculation above, should TrueBeat be concerned about future costs increases? Make sure your answer uses complete sentences and includes 30 to 50 words to support your answer. [The following information applies to the questions displayed below. Listed here are the total costs associated with the production of 1,000 drum sets manufactured by TrueBeat. The drum sets sell for $516 each. Costs 1. Plastic for casing-$19,000 2. Wages of assembly workers $90,000 3. Property taxes on factory-$7,000 4. Accounting staff salaries--$33,000 5. Drum stands (1,000 stands purchased)-$35,000 6. Rent cost of equipment for sales staff-$36,000 7. Upper management salaries-$170,000 8. Annual flat fee for factory maintenance service-$16,000 9. Sales commissions--$25 per unit 10. Machinery depreciation, straight-line-$42,000 4) TrueBeat expects production and sales levels to remain constant from year 4 onward at 6,000 drum sets. Write a Profit Formula for TrucBeat's operations using variable costing. NOI - Q x CM unit - FC, where Q represents the number of units produced and sold, CM unit is the contribution margin per unit and FC is the total fixed expenses. a) Profit formula Contribution mayin : Total Sales - Total variable expenses, Profit: Contribution b) Complete chart assuming the same number of units will be produced and sold. margin - Total fred expenses Variable Expenses Units Sales produced/sold Revenue 4,000 12.000 5,000 E 50.000 6,000 3,096. ADD 7.000 3.612 845, DOO Fixed Expenses 204.RO 304, DOD 304,000 304. DOO Profit/NOI ILOR 1.4LOON 1.778. 22225.000 ILIB.400 c) Prepare a Cost-Volume-Profit graph for TrueBeat Company (you can use the graph at the end of the assignment or create your own) i) Label both the x and y axis using appropriate increments. Dollar values should be used for the y axis and number of units for the x axis. ii) Plot the Fixed Expense line. Label it. iii) Plot the Sales Revenue line and label it. iv) Plot the Total Expense line and label it. v) Indicate the Break-even Point on the graph and label it. vi) Shade and label the portion of the graph that indicates the company's positive profit. 3