Reference no: EM133022285

Question - Laila company has provided the following information about the company

Sales $225,000

Sales Discount $20,000

Overhead cost (Fixed) $35,000

Overhead (Variable) $20,000

Sales Return /Allowance $2,500

Selling commission [variable] $39,600

Supplies $2,600

Selling commission [fixed] $15,000

Prepaid expense $11,000

Variable admin expenses $ 24500

Accrued cost $7900

Fixed admin expenses $20,000

Tax 25%

Interest expenses $5,420

Capacity of production 4,000 units

Units sold 3,500

Units produced 3,500

Hint: all selling and admin costs are operating expenses.

REQUIRED -

1. Calculate the net income using contribution approach.

2. Calculate Net income using the absorption method [Financial Accounting method].

3. Find CM per unit and the Contribution Margin Ratio.

4. Determine the breakeven sales in units and dollars.

5. Draw a graph to show the profit and lost and breakeven point for this company [BE graph].

6. Calculate margin of safety in dollars and in percentage. Explain what this concept means to a cost accountant.

7. The sales manager believes that a project of the company could increase sales by 25% but variable cost will also decrease by $5,000 and fixed cost will increase by $ 85,000. Should the company accept the project or reject?

8. Determine the sales revenue necessary to generate before tax profit if the after tax is$75,000. The tax rate is 18%.

9. Determine sales revenue necessary to generate after-tax profit of $85,000.

10. Calculate degree of leverage [DOL] and if sales increases by 25%, what will be the increase or decrease in net income in $ of this company? What will be the total net income if the project is accepted?