Reference no: EM132626651
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.
a. 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.
Problem 1) Should the company choose the lease or the royalty plan?
Problem 2) Under the royalty plan compute break-even point in kilograms.
Problem 3) Under the royalty plan compute break-even point in dollars.
Problem 4) Under the royalty plan determine the sales in kilograms that would be required to produce net operating income of $90,000.