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.