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Prepare a variable costing income statement

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Question - Chamberlain Dog Toys makes doggie leather jackets that sell for $25 each.  The company's annual level of production and sales is 120,000 units.  In addition to $430,500 of fixed manufacturing overhead and $159,050 of fixed administrative expenses, the following per-unit costs have been determined for each leather jackets:

Direct Material                                         $6.00

Direct Labor                                            3.00

Variable manufacturing overhead              0.80

Variable selling expense                           2.20

Total variable cost                                   $12.00

Required:

a. Prepare a variable costing income statement at the current level of production and sales.

b. Calculate the unit contribution margin in dollars and the contribution margin ratio for the leather jackets.

c. Determine the break-even point in number of leather jackets.

d. Calculate the dollar break-even point in $ using the contribution margin ratio.

e. Determine Chamberlain's margin of safety in units, in sales dollars, and as a percentage.

f. Compute the company's degree of operating leverage.  If sales increase by 25 percent, by what percentage will before-tax income increase?

g. How many leather jackets must the company sell to earn $996,450 in before-tax income?

h. If the company wants to earn $657,800 after tax and is subject to a 20 percent tax rate, how many units must be sold?

i. How many leather jackets must be sold to break even if Chamberlain's fixed manufacturing costs increased by $7,865?  (Use the original data.)

Reference no: EM131792393

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