Exercise 4-27 Income Statement, Break-Even Units, Units to Earn Target Income.

Melford Company sold 26,800 units last year at $16.00 each. Variable cost was $11.50, and
total
fixed cost was $126,000.
Required:
1. Prepare an income statement for Melford for last year.
Melford Company
Contribution Income Statement
For the End of the Year

Total Per Unit

Sales (26,800 units) $ 428,800.00 $ 16.00
Variable cost 308,200.00 11.50
Contribution margin $ 120,600.00 $ 4.50
Fixed cost 126,000.00
Net operating income (loss) $ (5,400.00)

2. Calculate the break-even point in units.

Break-even point = Unit CM x Q – Fixed Cost
$0 = $4.50Q - $126,000
$126,000 = $4.50Q
28,000 = Q
Untuk mencapai break-even point, maka Melford Company harus menjual 28,000
unit/tahun.

3. Calculate the units that Melford must sell to earn operating income of $12,150 this year.
Profit = Unit CM x Q – Fixed Cost
$12,150 = $4.50 x Q - $126,000
$138,150 = $4.50Q
30,700 = Q
Untuk mendapatkan operating income $12,150 di tahun ini, maka Melford Company
harus menjual 30,700 unit.
Exercise 4-32 Multiple-Product Breakeven
Cherry Blossom Products Inc. produces and sells yoga-training products: how-to DVDs and a
basic equipment set (blocks, strap, and small pillows). Last year, Cherry Blossom Products
sold 13,500 DVDs and 4,500 equipment sets. Information on the two products is as follows:
DVDs Equipment
Sets
Price $ 8 $ 25
Variable cost per unit 4 15

Total fixed cost is $84,920.

Refer to the information for Cherry Blossom Products above.
Required:
1. What is the sales mix of DVDs and equipment sets?
Sales mix = DVDs : Equipment Sets
= 13,500 : 4,500
=3:1

2. Compute the break-even quantity of each product.

Equipment Package
DVDs
Set Total
Price $ 8 $ 25
Variable cost $ 4 $ 15
Contribution margin $ 4 $ 10
Sales mix 3 1
Package contribution margin $ 12 $ 10 $ 22

Break-even package = _Total fixed cost______

Package contribution margins
= $84,920
$22
= 3,860 package

Break-even quantity = DVDs = 3,860 x 3 = 11,580 units

= Equipment sets = 3,860 x 1 = 3,860 units
Exercise 4-37 Margin of Safety and Operating Leverage
Medina Company produces a single product. The projected income statement for the coming
year is as follows:
Sales (40,000 units @ $45) $ 1,800,000
Total variable cost 1,044,000
Contribution margin $ 756,000
Total fixed cost 733,320
Operating income $ 22,680

(Note: Round all dollar answers to the nearest dollar. Round fractional answers to two
decimal places.)
Required:
1. Compute the break-even sales dollars.
Medina Company
Projected Income Statement
For the Coming Year

Total Per Unit

Sales (40,000 units) $ 1,800,000 100% $ 45.00
Variable cost 1,044,000 58% 26.10
Contribution margin $ 756,000 42% 18.90
Fixed cost 733,320
Net operating income $ 22,680

 Break-even sales dollar = Fixed expenses

CM ratio
= $733,320
42%
= $1,746,000

2. Compute the margin of safety in sales dollars.

MoS = Total sales – Break-even sales
= $1,800,000 – $1,746,000
= $54,000

3. Compute the degree of operating leverage (Note: Round answer to two decimal places).
DOL = _Contribution Margin_ = 756,000 = 33,33
Net Operating Income 22,680

4. Compute the new operating income if sales are 20% higher than expected. (Note: Round
answer to the nearest dollar.)
Percent increase in sales 20%
DOL _33,33_x
Increase in profit 666,6%

Sales = 40,000 units

New sales = 40,000 x 120% = 48,000 units

Medina Company
Projected Income Statement
For the Coming Year

Total Per Unit

Sales (48,000 units) $ 2,160,000 $ 45.00
Variable cost 1,252,800 26.10
Contribution margin $ 907,200 $ 18.90
Fixed cost 733,320
Net operating income $ 173,880
Rounding $ 174,000