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No Slip Co. produces sports socks. The company has fixed costs of\(91,080 and variable costs of \)0.81 per package. Each package sells for $1.80.

Requirements

1. Compute the contribution margin per package and the contribution marginratio. (Round your answers to two decimal places.)

2. Find the breakeven point in units and in dollars using the contributionmargin approach.

Short Answer

Expert verified

Answer

1. Contribution margin ratio is $0.99 and contribution margin ratio is 55%

2. Breakeven sales in units are 92,000 package and $165,600 in dollars.

Step by step solution

01

Calculation of contribution margin and contribution margin ratio

$

Sales price per unit 1.80

Variable cost per unit (0.81)

Contribution margin per unit 0.99

Contribution margin ratio (sales price per unit/contribution margin 55%

per unit x100)

02

Calculation of breakeven sales in dollars and units

Breakevensalesinunits=FixedcostContributionmarginperunit=$91,080+$0$0.99=92,000PackageBreakevensalesindollars=FixedcostContributionmarginratio=$91,08055%%=$165,600Package

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Most popular questions from this chapter

You have just begun your summer internship at Omni Instruments. The company supplies sterilized surgical instruments for physicians. To expand sales, Omni is considering paying a commission to its sales force. The controller, Matthew Barnhill, asks you to compute: (1) the new breakeven sales figure, and (2) the operating profit if sales increase 15% under the new sales commission plan. He thinks you can handle this task because you learned CVP analysis in your accounting class.

You spend the next day collecting information from the accounting records, performing the analysis, and writing a memo to explain the results. The company president is pleased with your memo. You report that the new sales commission plan will lead to a significant increase in operating income and only a small increase in breakeven sales.

The following week, you realize that you made an error in the CVP analysis. You overlooked the sales personnelโ€™s $2,800 monthly salaries, and you did not include this fixed selling cost in your computations. You are not sure what to do. If you tell Matthew Barnhill of your mistake, he will have to tell the president. In this case, you are afraid Omni might not offer you permanent employment after your internship.

Requirements

1. How would your error affect breakeven sales and operating income under the proposed sales commission plan? Could this cause the president to reject the sales commission proposal?

2. Consider your ethical responsibilities. Is there a difference between (a) initially making an error and (b) subsequently failing to inform the controller?

3. Suppose you tell Matthew Barnhill of the error in your analysis. Why might the consequences not be as bad as you fear? Should Barnhill take any responsibility for your error? What could Barnhill have done differently?

4. After considering all the factors, should you inform Barnhill or simply keep quiet?

What is the margin of safety? What are the three ways it can be expressed?

What is the margin of safety? What are the three ways it can be expressed?

The budgets of four companies yield the following information:

Company

Beach Lake Mountain Valley

Net Sales Revenue \( 1,615,000 \)(d) \( 1,050,000 \)(j)

Variable Costs (a) 60,000 525,000 100,800

Fixed Costs (b) 232,000 260,000 (k)

Operating Income (Loss) 285,600 (e) (g) 31,500

Units Sold 170,000 10,000 (h) (l)

Contribution Margin per Unit \( 3.80 \) (f) \( 75.00 \) 9.00

Contribution Margin Ratio (c) 80% (i) 30%

Requirements

1. Fill in the blanks for each missing value. (Round the contribution margin per unit to the nearest cent.)

2. Which company has the lowest breakeven point in sales dollars?

3. What causes the low breakeven point?

Use the following information to complete Short Exercises S20-10 through S20-15.

Funday Park competes with Cool World by providing a variety of rides. Funday Park sells tickets at \(70 per person as a one-day entrance fee. Variable costs are \)42 per person, and fixed costs are $170,800 per month.

S20-15 Computing degree of operating leverage

Refer to the original information (ignoring the changes considered in Short Exercises S20-12 and S20-13). If Funday Park expects to sell 8,100 tickets, compute the degree of operating leverage (round to two decimal places). Estimate the operating income if sales increase by 15%.

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