Reference no: EM132609941

Questions -

Q1. Kerr Manufacturing sells a single product with a selling price of $600 with variable costs per unit of $360. The company's monthly fixed expenses are $72,000.

a. What is the company's break-even point in units?

b. What is the company's break-even point in dollars?

c. Prepare a contribution margin income statement for the month of January when they will sell 500 units.

d. How many units will Kerr need to sell in order to realize a target profit of $120,000?

e. What dollar sales will Kerr need to generate in order to realize a target profit of $120,000?

f. Construct a contribution margin income statement for the month of June that reflects $600,000 in sales revenue for Kerr Manufacturing.

Q2. Delta Co. sells a product for $150 per unit. The variable cost per unit is $90 and fixed costs are $15,250. Delta Co.'s tax rate is 36% and the company wants to earn $44,000 after taxes.

a. What would be Delta's desired pre-tax income?

b. What would be break-even point in units to reach the income goal of $44,000 after taxes?

c. What would be break-even point in sales dollars to reach the income goal of $44,000 after taxes?

d. Create a contribution margin income statement to show that the break-even point calculated in B, generates the desired after-tax income.

Q3. Company A has current sales of $10,000,000 and a 45% contribution margin. Its fixed costs are $3,000,000. Company B is a service firm with current service revenue of $5,000,000 and a 20% contribution margin. Company B's fixed costs are $500,000. Compute the degree of operating leverage for both companies. Which company will benefit most from a 25% increase in sales? Explain why.