Accounting on Different Companies Problems

Sumbro is a manufacturer of sun umbrellas that are distributed to resort hotels. Data concerning the next month’s budget appear below: Selling Price Variable Cost Fixed Cost Unit Sales $30/unit $20/unit $7,500 (per month) 1,000 units per month Required: a) Compute the company’s margin of safety in dollars b) Compute the company’s margin of safety as a percentage of its sales 2. Beyond Grass installs artificial turf in homes or sporting fields. The company’s most recent monthly contribution format income statement is as follows: Sales Variable Costs Contribution Margin Fixed Costs Net Operating Income Amount $80,000 $32,000 $48,000 $38,000 $10,000 % Sales 100 40 60 Required: a) Compute the company’s degree of operating leverage. b) By what % would net operating income increase if sales increased by 5%? 3. Linden Company manufactures automotive parts that sell for $40 per unit and has a CM Ratio of 30%. Linden’s fixed costs are $180,000 per year. The company plans to sell 16,000 units this year. Required: a) What is the variable cost per unit? b) What is the break-even point in unit sales AND in dollar sales? c) What amount of unit sales AND dollar sales is required to earn an annual profit of $60,000? d) Assume that by using a more efficient shipper, the company is able to reduce variable costs by $4 per unit. What is the company’s new break-even point in unit sales? 4. Carsons, Inc. produces cutlery sets out of high-quality wood and steel. The company makes a standard cutlery set and a deluxe cutlery set and sells them to retail department stores throughout the country. The standard set sells for $60, and the deluxe set sells for $75. The variable costs associated with each set are given below: Production Costs Sales Commissions (15% Sales Price) Standard $15.00 $9.00 Deluxe $30.00 $11.25 Carsons incurs the following fixed costs each month: Advertising Depreciation Administrative $105,000 $21,700 $63,000 Salespersons are paid on a commission basis to encourage them to be aggressive in their sales efforts. The CFO watches sales commissions carefully and has noted that they have risen steadily over the last year. For this reason, the CFO was shocked to find that even though $ sales have increased, profits for the current month – May – are down substantially from April. Sales, in sets, for the last two months are given below: Sales (# sets) April May Standard 4,000 1,000 Deluxe 2,000 5,000 Total 6,000 6,000 Required: a) Prepare contribution format income statements for April and May. You may use the template provided on the next page. (HINT: Place fixed costs only in the Total column. Do not show percentages for the fixed costs) b) Explain the difference in net operating incomes between the two months, even though the same total number of sets was sold in each month. c) Using April’s sales mix, what is the break-even point in total dollar sales at Carson’s? d) In May, what was the number of standard sets and number of deluxe sets (each, not total) that needed to be sold to break even? Use the sales mix ratio from May. e) What do you recommend that the CFO does in June to ensure that profits don’t drop again? TEMPLATE FOR QUESTION 4a) Carsons, Inc. Income Statement For (Month) Sales………………………. Variable expenses: Production …………….. Sales commission ……. Total variable expenses . Contribution margin …… Fixed expenses: Advertising ……………. Depreciation ………….. Administrative ………… Total fixed expenses ….. Net operating income…. Standard Amount % Deluxe Amount % Total Amount % 5. What is NOT a way to express the CM Ratio? A) B) C) D) Contribution Margin / Sales Unit Contribution Margin / Selling Price (Variable Costs – Fixed Costs) / Sales (Sales – Variable Costs) / Sales 6. The break-even in sales dollars will increase if there is an increase in: A) Total Fixed Expenses B) Total Sales (price is constant) C) Quantity Produced D) Total Variable Costs (VC/unit is constant) 7. At a break-even point of 400 units sold, W.H. Corporation’s variable expenses are $8,000 and its fixed expenses are $8,000. What will the Corporation’s net operating income be at a volume of 423 units? A) B) C) D) $0 $230 $460 $690 …