Reference no: EM132598063

Question 1: Kylie's Cookies is considering the purchase of a larger oven that will cost $2,200 and will increase her fixed costs by $59. What would happen if she purchased the new oven to realize the variable cost savings of $0.10 per cookie, and what would happen if she raised her price by just $0.20? She feels confident that such a small price increase will decrease the sales by only 25 units and may help her offset the increase in fixed costs. Given the following current prices how would the break-even in units and dollars change if she doesn't increase the selling price and if she does increase the selling price? Complete the monthly contribution margin income statement foreach of these cases.

Question 2: Morris Industries manufactures and sells three products (AA, BB, and CC). The sales price and unit variable cost for the three products are as follows: Their sales mix is reflected as a ratio of 5:3:2. Annual fixed costs shared by the three products are $258,000 per year.

a. What are total variable costs for Morris with their current product mix?

b. Calculate the number of units of each product that will need to be sold in order for Morris to break even.

c. What is their break-even point in sales dollars?

d. Using an income statement format, prove that this is the break-even point.

Question 3: Manatoah Manufacturing produces 3 models of window air conditioners: model 101, model 201, and model 301. The sales price and variable costs for these three models are as follows: The current product mix is 4:3:2. The three models share total fixed costs of $430,000.

a. Calculate the sales price per composite unit.

b. What is the contribution margin per composite unit?

c. Calculate Manatoah's break-even point in both dollars and units.

d. Using an income statement format, prove that this is the break-even point.

Question 4: Jakarta Company is a service firm with current service revenue of $400,000 and a 40% contribution margin. Its fixed costs are $80,000. Maldives Company has current sales of $6,610,000 and a 45% contribution margin. Its fixed costs are $1,800,000.

a. What is the margin of safety for Jakarta and Maldives?

b. Compare the margin of safety in dollars between the two companies. Which is stronger?

c. Compare the margin of safety in percentage between the two companies. Now, which one is stronger?

d. Compute the degree of operating leverage for both companies. Which company will benefit most from a 15% increase in sales? Explain why. Illustrate your findings in an Income Statement that is increased by 15%