Required information

Chapter 6: Applying Excel

Step 1: Download the Applying Excel form located on the left-hand side, under files.

Step 2: Then enter formulas in all cells that contain question marks. For example, in cell B13 enter the formula "= B5".

Step 3: Check your worksheet by changing the fixed expenses to $270,000. If your worksheet is operating properly, the degree of operating leverage should be 10. If you do not get this answer, find the errors in your worksheet and correct them.

Step 4: Proceed to the requirements below only after completing your worksheet as it will be used to answer the following questions.

Chapter 6: Applying Excel: Exercise

2. Change all of the numbers in the data area of your worksheet so that it looks like this:

If your formulas are correct, you should get the correct answers to the following questions.

(a) What is the break-even in dollar sales?

(b) What is the margin of safety percentage?

(c) What is the degree of operating leverage? (Round your answer to 2 decimal places.)

3. Using the degree of operating leverage and without changing anything in your worksheet, calculate the percentage change in net operating income if unit sales increase by 20%.

4. Confirm your calculations in Requirement 3 above by increasing the unit sales in your worksheet by 20% so that the Data area looks like this:

(a) What is net operating income? (Negative amount should be indicated by a minus sign.)

(b) By what percentage did the net operating income increase?

5. Thad Morgan, a motorcycle enthusiast, has been exploring the possibility of relaunching the Western Hombre brand of cycle that was popular in the 1930s. The retro-look cycle would be sold for $10,000 and at that price, Thad estimates 300 units would be sold each year. The variable cost to produce and sell the cycles would be $7,000 per unit. The annual fixed cost would be $810,000.

a. What is the break-even in unit sales?

b. What is the margin of safety in dollars?

c. What is the degree of operating leverage? (Round your answer to 2 decimal places.)

Thad is worried about the selling price. Rumors are circulating that other retro brands of cycles may be revived. If so, the selling price for the Western Hombre would have to be reduced to $8,500 to compete effectively. In that event, Thad would also reduce fixed expenses to $616,000 by reducing advertising expenses, but he still hopes to sell 300 units per year.

d. What would the net operating income be in this situation? (Negative amount should be indicated by a minus sign.

Data
Unit sales	20,000	units
Selling price per unit	$60	per unit
Variable expenses per unit	$45	per unit
Fixed expenses	$240,000
Enter a formula into each of the cells marked with a ? below
Review Problem: CVP Relationships
Compute the CM ratio and variable expense ratio
Selling price per unit	?	per unit
Variable expenses per unit	?	per unit
Contribution margin per unit	?	per unit
CM ratio	?
Variable expense ratio	?
Compute the break-even
Break-even in unit sales	?	units
Break-even in dollar sales	?
Compute the margin of safety
Margin of safety in dollars	?
Margin of safety percentage	?
Compute the degree of operating leverage
Sales	?
Variable expenses	?
Contribution margin	?
Fixed expenses	?
Net operating income	?
Degree of operating leverage	?

A B C 1 Chapter 6: Applying Excel 2. 3 Data 4 Unit sales 5 Selling price per unit Variable expenses per unit Fixed expenses 10,000 units $ 20 per unit $ 10 per unit $ 90,000 6 7 A B 1 Chapter 6: Applying Excel 2 3 Data 4 Unit sales 12,000 units 5 6 Selling price per unit Variable expenses per unit Fixed expenses $ 20 per unit $ 10 per unit $ 90,000 7