Solve the below questions of Cost Volume Profit Analysis:

Q1. Olongapo Sports Corporation distributes two premium golf ballsthe Flight Dynamic and the Sure Shot. Monthly sales and the contribution margin ratios for the two products follow:

Product

Flight Dynamic Sure Shot Total

Sales . . . . . . . . . $150,000 $250,000 $400,000

CM ratio . . . . . . . 80% 36% ?

Fixed expenses total $183,750 per month.

Required:

1. Make a contribution format income statement for the company as a whole. Carry computations to one decimal place.

2. Compute the break-even point for the company based on the current sales mix.

3. If sales increase by $100,000 a month, by how much would you expect net operating income to increase? What are your assumptions?

Q2. Outback Outfitters sells recreational equipment. One of the company's products, a small camp stove, sells for $50 per unit. Variable expenses are $32 per stove, and fixed expenses associated with the stove total $108,000 per month.

Required:

1. Compute the break-even point in unit sales and in dollar sales.

2. If the variable expenses per stove increase as a percentage of the selling price, will it result in a higher or a lower break-even point? Why? (Assume that the fixed expenses remain unchanged.)

3. At present, the company is selling 8,000 stoves per month. The sales manager is convinced that a 10% reduction in the selling price would result in a 25% increase in monthly sales of stoves. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes. Show both total and per unit data on your statements.

4. Refer to the data in (3) above. How many stoves would have to be sold at the new selling price to yield a minimum net operating income of $35,000 per month?

Q3. Menlo Company distributes a single product. The company's sales and expenses for last month follow:

Total Per Unit

Sales . . . . . . . . . . . . . . . . . . . . . . . . . $450,000 $30

Variable expenses . . . . . . . . . . . . . . . 180,000 12

Contribution margin . . . . . . . . . . . . . . 270,000 $18

Fixed expenses . . . . . . . . . . . . . . . . . 216,000

Net operating income . . . . . . . . . . . . . $ 54,000

Required:

1. What is the monthly break-even point in unit sales and in dollar sales?

2. Without resorting to computations, what is the total contribution margin at the break-even point?

3. How many units would have to be sold each month to earn a target profit of $90,000? Use the formula method. Verify your answer by preparing a contribution format income statement at the target sales level.

4. Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms.

5. What is the company's CM ratio? If sales increase by $50,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?

Q4. Gold Star Rice, Ltd., of Thailand exports Thai rice throughout Asia. The company grows three varieties of riceFragrant, White, and Loonzain. Budgeted sales by product and in total for the coming month are shown below:

Product

White Fragrant Loonzain Total

Percentage of total sales 20% 52% 28% 100%

Sales . . . . . . . . . . . . . . . . . . . . . $150,000 100% $390,000 100% $210,000 100% $750,000 100%

Variable expenses . . . . . . . . . . . 108,000 72 % 78,000 20 % 84,000 40 % 270,000 36 %

Contribution margin . . . . . . . . . . $ 42,000 28 % $312,000 80 % $126,000 60 % 480,000 64 %

Fixed expenses . . . . . . . . . . . . . 449,280

Net operating income . . . . . . . . . $30,720

Dollar sales to break even = Fixed expenses/CM ratio = $449,280/0.64= $702,000

As shown by these data, net operating income is budgeted at $30,720 for the month and breakeven sales at $702,000.

Assume that actual sales for the month total $750,000 as planned. Actual sales by product are: White, $300,000; Fragrant, $180,000; and Loonzain, $270,000.

Required:

1. Make a contribution format income statement for the month based on actual sales data. Present the income statement in the format shown above.

2. Compute the break-even point in dollar sales for the month based on your actual data.

3. Considering the fact that the company met its $750,000 sales budget for the month, the president is shocked at the results shown on your income statement in (1) above. Make a brief memo for the president explaining why both the operating results and the break-even point in dollar sales are different from what was budgeted.