Question

The following is Alsatian Corporation’s contribution format income statement from last month:

            Sales(2000 units x $70)                                              $140,000

            Less: Variable Costs                                                       84,000

Contribution Margin                                                       56,000

Less: Fixed Expenses                                                     24,000

Operating Income                                                          $32,000

The company has no beginning or ending inventories and produced and sold 2,000 units during the month.

 

Required:

A/ What is the company’s break-even sales in $(2)

 

 

 

 

 

B/ If the sales volume increases by 10% and variable costs/unit decreases by $2.00, what will the new operating income be? Produce a CVP statement (3)

 

 

 

 

 

 

 

C/ What sales in units would be required to attain an operating income of $39,000(2)

 

 

 

 

 

 

 

D/ What is the company’s margin of safety in dollars and stated as a %? (2)

 

 

 

 

 

 

E/  Part 1: What is the company’s degree of operating leverage based on the original data?(1)

 

 

 

     Part 2: Using your answer to Part 1, if sales increased by 15% above the amounts in the original data, how much in $ would net income increase? (2)

 

 

 

 

 

F/ If the business requires an operating income of 20% of sales, what will be the required sales in $, assuming all costs and selling prices remain as in the original data? (4)

 

 

 

 

 

G/ Suppose Alsatian Corporation had a tax rate of 25% and wants to earn an after tax net income of $24,000. Calculate the sales in units that would be needed from the original data? (3)