Reference no: EM132624978
Emerald, Inc, produces a single product. 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 was no beginning or ending inventories.
Required:
Problem 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.
Problem b. An important part of processing is performed by a machine that is currently being leased for $20,000 per month. The company 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.
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