Question 1
a. Kingston Baker’s Ltd. most recent monthly contribution format income statement is given below:
Sales ………………. $60,000
Less variable expenses .. 45,000
Contribution margin ….. 15,000
Less fixed expenses ….. 18,000
Net loss ……………. ($ 3,000)
The company sells its only product for $10 per unit. There were no beginning or ending inventories.
Calculate:
i. the company’s contribution margin ratio? (2 marks)
ii. the breakeven points in units and in dollar sales? (4 marks)
iii. the total variable expenses at the break-even point? (4 marks)
iv. If unit sales were increased by 25% and fixed expenses were reduced by $4,000 at
the current level of sales, what would be the company’s expected net income?
(Prepare a new income statement.) (6 marks)
b. The following monthly budgeted data is available for the Hardrock plc:
Product A Product B Product C
Sales…………….. $660,000 $380,000 $660,000
Variable expenses….. 396,000 266,000 528,000
Contribution margin… $264,000 $114,000 $132,000
Budgeted net income for the month is $260,000.
Calculate:
i. the break-even sales for the month given the sales mix. (5 marks)
ii. the margin of safety. (4 marks)
(Total 25 marks)
