Reference no: EM132908488

Problem - Denbury Hospitality Products, Inc. is a small-sized food product manufacturer based in the Rocky Mountain regions of the US mid-west. The company started operations in January 2005 and quickly gained a reputation for its highly popular birthday cakes, which the company sells for $500 each. The following information regarding estimated revenues and costs relating to the birthday cakes is taken from the company's budget for the year 2022:

Net sales	$670,000	Selling expenses - variable	$24,000
Direct materials	$120,000	Selling expenses - fixed	$28,000
Direct labour	$39,000	Administrative expenses - variable	$14,000
Manufacturing overhead - variable	$37,000	Administrative expenses - fixed	$18,000
Manufacturing overhead - fixed	$29,000

Required -

1. Assuming fixed costs and net sales are spread evenly throughout the year, calculate the company's monthly break-even point in (1) units and (2) dollars.

2. Calculate the contribution margin ratio, the annual margin of safety ratio, and the annual profit.

3. Assume the price remains at $500 per unit and variable costs remain the same per unit, but fixed costs increase by 20% annually. Calculate the percentage increase in unit sales required to achieve the same level of annual profit calculated in part (2).

4. Return to the original cost estimates and determine the sales required to earn an operating income of $530000 after tax. The company's income tax rate is 30%.