Reference no: EM132560492
Part A: Fixed and Variable Cost Stuart Manufacturing produces metal picture frames. The company's income statements for the last two years are given below:
Last year This year Units
sold................................................... 50,000 70,000
Sales........................................................... $800,000 $1,120,000
Cost of goods sold ..................................... 550,000 710,000
Gross margin ............................................. 250,000 410,000
Selling and administrative expense ........... 150,000 190,000
Net operating income ................................ $100,000 $ 220,000
The company has no beginning or ending inventories.
Required:
Question a. Estimate the company's total variable cost per unit and its total fixed costs per year. (Remember that this is a manufacturing firm.)
Question b. Compute the company's contribution margin for this year. Part B: Cost-Volume-Profit Analysis Belli-Pitt, Inc, produces a single product.
Part-b
The results of the company's operations for a typical month are summarized in contribution format as follows:
Sales................................... $540,000
Variable expenses.............. 360,000
Contribution margin .......... 180,000
Fixed expenses .................. 120,000
Net operating income ........ $ 60,000
The company produced and sold 120,000 kilograms of product during the month. There were no beginning or ending inventories.
Required:
Question a. Given the present situation, compute 1. The break-even sales in kilograms.
2. The break-even sales in dollars.
3. The sales in kilograms that would be required to produce net operating income of $90,000.
4. The margin of safety in dollars.
Question b. An important part of processing is performed by a machine that is currently being leased for $20,000 per month. Belli-Pitt has been offered an arrangement whereby it would pay $0.10 royalty per kilogram processed by the machine rather than the monthly lease.
1. Should the company choose the lease or the royalty plan?
2. Under the royalty plan compute break-even point in kilograms.
3. Under the royalty plan compute break-even point in dollars.
4. Under the royalty plan determine the sales in kilograms that would be required to produce net operating income of $90,000.