Calculate the current operating income

Assignment Help Accounting Basics

Reference no: EM132474817

Being that volume is the primary factor affecting costs and expenses, semi variable costs have been separated into their fixed and variable segments. Beginning and ending inventories remain at a level of 3,000 units. Current plant capacity is 210,000 units.

The current-year data assembled is as follows:

Sales price per unit		$15
Variable costs per unit:
Direct materials	$3
Direct labour	$1
Variable manufacturing overhead and selling and administrative expenses	$2	$ 6
Fixed costs		$1,000,000

Instructions:

Question 1. Compute the current contribution margin and contribution ratio.

Question 2. Compute the break-even point in units under the current situation and after January 1.

Question 3. What increase in selling price would be necessary to cover the 20% increase in direct labour cost and still maintain the current contribution margin.

Question 4. Calculate the current operating income.

Question 5. If the sales price remains the same and the 20% wage increase goes int effect, how many units must be sold to maintain the current operating income?

Question 6. Harris believes that an additional $500,000 investment in machinery (to be depreciated at 20% annually) will increase present production capacity (210,000 units) by 5%. If all units produced can be sold at the present price of $15 per unit and the wage increase goes into effect, how would the estimated operating income before capacity is increased compare with the estimated operating income at full capacity before and after the expansion.

Question 7. Prepare a Cost-Volume-Profit graph before and after expansion.

Question 8. Write a brief report providing your opinion whether the company should or should not go through with the expansion.

Attachment:- contribution ratio.rar

Reference no: EM132474817

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