The Chapter 6 Form worksheet is to be used to create your own worksheet version of the Review Problem example in the text.
Unit sales Selling price per unit Variable expenses per unit Fixed expenses 20,000 units $60 per unit $45 per unit $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 Variable expenses per unit Contribution margin per unit $60 per unit 45 per unit $15 per unit CM ratio Variable expense ratio 25% 75% Compute the break-even Break-even in unit sales Break-even in dollar sales 16,000 units $960,000 Compute the margin of safety Margin of safety in dollars Margin of safety percentage $240,000 20% Compute the degree of operating leverage Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 1,200,000 900,000 300,000 240,000 $ 60,000 Degree of operating leverage 5.00 2. Change all of the numbers in the data area of your worksheet so that it looks like this: A B 1 Chapter 6: Applying Excel 2 3 Data 4 Unit sales 5 Selling price per unit 6 Variable expenses per unit 7 Fixed expenses 30,000 units S 20 per unit S 12 per unit $ 192,000 If your formulas are correct, you should get the correct answers to the following questions. (a) What is the break-even in dollar sales? Break-even in dollar sales (b) What is the margin of safety percentage? Margin of safety percentage % (c) What is the degree of operating leverage? (Round your answer to 2 decimal places.) Degree of operating leverage (c) What is the degree of operating leverage? (Round your answer to 2 decimal places.) Degree of operating leverage 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%. Percentage increase in net operating income % 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: B 1 Chapter 6: Applying Excel 2 3 Data 4 5 36,000 units 20 per unit s Unit sales Selling price per unit Variable expenses per unit Fixed expenses 6 S 12 per unit $ 192,000 7 (a) What is net operating Income? (Negative amount should be Indicated by a minus sign.) Net operating income (loss) (b) By what percentage did the net operating Income Increase? Percentage increase in net operating income % 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 $15,000 and at that price, Thad estimates 600 units would be sold each year. The variable cost to produce and sell the cycles would be $11,250 per unit. The annual fixed cost would be $2,025,000. a. What is the break-even in unit sales? Break-even in unit sales b. What is the margin of safety in dollars? Margin of safety in dollars c. What is the degree of operating leverage? (Round your answer to 2 decimal places.) Degree of operating leverage Thad is worried about the selling price. Rumors are clrculating that other retro brands of cycles may be revived. If so, the selling price for the Western Hombre would have to be reduced to $13,500 to compete effectively. In that event, Thad would also reduce fixed expenses to $1,620,000 by reducing advertising expenses, but he still hopes to sell 600 units per year. d. What would the net operating Income be in this situation? (Negative amount should be indicated by a minus sign.) Net operating income (loss)
