Calculate:the break-even sales for the month given the sales mix.he margin of safety.

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)

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