Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Silicon Cards makes a high-capacity memory card, ThumbDrive, for use in electronic equipment. Silicon's owner, Monique Mejia, started the company because she believed thatmemory cards

Silicon Cards makes a high-capacity memory card, ThumbDrive, for use in electronic equipment. Silicon's owner, Monique Mejia, started the company because she believed thatmemory cards would gain widespread acceptance. Monique believed the demand for portable electronics would increase and, in turn, stimulate the demand for memory cards. During the upcoming year 2018, Silicon expects to sell 450,000 units of memory cards at an average selling price of $30 per card. Silicon's variable cost is $18 per card, and its annual fixed costs equal $4,800,000.

Required: (Consider each situation independently by referring back to the original data)

a. Using equation method, calculate the number of cards Silicon needs to sell to reach breakeven? What would be Silicon's sales revenue at breakeven?

b. Monique has decided that she must earn at least $150,000 in order to compensate her time and

effort. What should be the amount of sales revenue Silicon must generate in order to earn this level

of target profit?

c. What is Silicon's margin of safety (in sales dollar) and margin of safety in percentage?

d. What would be the company's degree of operating leverage with expected operation?

If sales increases by 20%, what would be the percentage change in net income using the degree of operating leverage? Prove your finding by preparing a new contribution format statement..

e. Silicon's Marketing Manager is requesting a 10% price cut combined with an increase in $750,000 of promotional cost. What would be Silicon's new breakeven sales revenue? Let's assume that the Marketing Manager believes sales will increase by 100,000 memory cards if Silicon approves these changes. By how much will Silicon's profit increase or decrease due to the advertising?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Studies Of Company Records (RLE Accounting)1830-1974

Authors: J. R. Edwards

1st Edition

1138983306, 9781138983304

More Books

Students also viewed these Accounting questions

Question

1 What risks can you identify?

Answered: 1 week ago

Question

Am I surfing to avoid a more difficult or unpleasant t ask?

Answered: 1 week ago