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 ACCT640 - Chapter 3 -...

# Breakeven point & Margin of safety

 1.     Last month when Harrison Creations, Inc., sold 40,000 units, total sales were \$300,000, total variable expenses were \$240,000, and fixed expenses were \$45,000.

Required:

a.

What is the company’s contribution margin (CM) ratio?

b.

Estimate the change in the company’s net operating income if it were to increase its total sales by \$1,500.

2.

[The following information applies to the questions displayed below.]

Maxson Products distributes a single product, a woven basket whose selling price is \$8 and whose variable cost is \$6 per unit. The company’s monthly fixed expense is \$5,500.

 Required: a. Compute for the company’s break-even point in unit sales using the equation method. b. Compute for the company’s break-even point in sales dollars using the equation method and the CM ratio. (Do not round intermediate calculations. Round your CM ratio to 2 decimal places.)   CM ratio______________________   Break-even point in dollar sales________________________________

 4.     Mohan Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning next month’s budget appear below:

 Selling price \$25 per unit Variable expenses \$15 per unit Fixed expenses \$8,500 per month Unit sales 1,000 units per month

 Required: a. Compute the company’s margin of safety.

b. Compute the company’s margin of safety as a percentage of its sales. (%)

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## Breakeven point & Margin of safety

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 Last xxxxx xxxx Harrison xxxxxxxxxx xxxxx sold 40,000 xxxxxx xxxxx xxxxx were \$300,000, total xxxxxxxx xxxxxxxx xxxx \$240,000, and fixed xxxxxxxx were \$45,000.

xxxx

xxxxxxxxx

xx

xxxx xx the xxxxxxx’x xxxxxxxxxxxx margin xxxx xxxxxx

xx

Estimate xxx xxxxxx xx the xxxxxxx’s xxx xxxxxxxxx xxxxxx xx xx xxxx to xxxxxxxx its xxxxx xxxxx by \$1,500.

xxxxxxxx

xxxx is the Company’s xxxxxxxxxxxx xxxxxx xxxxx

xxxxxxxxxxxx Margin xxxxxx = Contribution / Sales

= xxxxxxxx – 2,40,000) x 300,000

x xxx

xxxxxxxx the xxxxxx xx the company’s xxx xxxxxxxxx xxxxxx xx xx were xx xxxxxxxx its total xxxxx xx \$1,500.

xxxxxx xx xxxxxxx’s xxx operating Income x Increase in xxxxx x xxxxxxxxxxxx Margin xxxxx

x xxxxxx x 20%

= xxxx

xxxx following xxxxxxxxxxx applies xx the xxxxxxxxx xxxxxxxxx xxxxxxx

x

Maxson Products xxxxxxxxxxx x single xxxxxxxx a xxxxx basket whose xxxxxxx price xx xx and xxxxx variable xxxx xx xx per unit. The company’x monthly xxxxx expense xx \$5,500.

x
 xxxxxxxxx xx xxxxxxx xxx xxx xxxxxxx’x break-even point in unit sales xxxxx xxx xxxxxxxx

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