Scribd Logo
Upload

Welcome to Scribd!

  • 8 views

    FinalExam (Essay)

    Uploaded by

    rifki

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    FinalExam (Essay)

    Uploaded by

    rifki
    8 views4 pages

    Original Title

    FinalExam(Essay)

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    8 views4 pages

    FinalExam (Essay)

    Uploaded by

    rifki

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 4

    MUHAMMAD RIFKI - 29121244

    1. Compute the break-even point and contribution margin


    ratio (CM ratio) of Four S Company
    Known:
    UNITS PRICE
    Sales 13500 $40 $540.000
    Less variable expenses 13500 $28 $378.000
    Contribution margin $162.000
    Less fixed expenses $180.000
    Net operating loss -$18.000

    a. Break-Even Point in units


    = Fixed expenses / Contribution margin per unit
    15000 in units
    contribution margin per unit = contribution margin / units

    Break-Even Point in dollars


    = BEP in units x Sale price
    $600.000

    b. Contribution margin ratio


    = Contribution margin / Net sales
    30,00%
    2. Sales Department feels feels that if monthly advertising budget is increased by $16.000, the sales
    will be increased by 3.500 units. Show the effect of these changes assuming the selling price remains
    unchanged.

    Known:
    Advertising budget: increased $16.000
    Sales budget: increased by 3500 units

    Question:
    Show the effect of these changes assuming the selling price remains unchanged?

    Answer:
    Increase in sales ($40x3500 units) $140.000
    Less increase in expenses:
    Variable ($28x3500 units) $98.000
    Fixed (advertising budget) $16.000
    Total cost $114.000
    Incremental net operating income $26.000

    If monthly advertising budget is increased by $16.000 and sales revenues is increased by $140.000
    the company will earn a profit of $8000 ($26.000-18.000) rather than suffering a loss
    18000 = net operating loss

    3. If sales price is reduced by 20% and monthly advertising expenses are increased by $70,000,
    the unit sales are expected to increase by 100%.
    Show the effect of this change by preparing a new income statement of Four S company
    UNITS PRICE
    Sales 27000 $32 $864.000
    Less variable expenses 27000 $28 $756.000
    Contribution margin $108.000
    Less fixed expenses (180.000+70.000) $250.000
    Net operating loss $142.000
    4. Computation of the number of units to be sold to earn 9000
    unit sale for target profit = (Fixed expenses + Target Profit)/ Contribution Margin per Unit
    17500

    The new packing will increase variable expenses from $28 per Unit to $29.20 per Unit
    and reduce the contribution margin from $12 per unit to $10.80 per Unit
    [($40-($28=$1.20)]= $10.80
    5. The company is planning to purchase a new machine. The installation of new machine
    will increase fixed cost by $236,000 and decrease unit variable expenses by 50%.

    a. Compute the CM ratio and break-even point if the new machine is installed.

    i. Contribution margin ratio = Contribution margin / Net sales


    Contribution Margin Ratio = 351,000 / $540,000
    0.65 or 65%
    ii. Break-even point in units = Fixed expenses/Contribution margin per unit
    Break-even point in units = $416,000/$26
    16,000 units
    Variable expenses have decreased from $28 to $14 (50% reduction)
    therefore the contribution margin
    iii. would increase from $12 per unit to $26 per unit ($40 – $14).Break-even point in units × Sale price
    16,000 units × $40
    $640,000

    b. Income statement with and without installing new machine


    If new machine is not installed :
    Sales ($20,000 units x $40) $800.000
    Less Variable Expenses ($20,000 units x $28) 280.000

    Contribution Margin 240.000


    Less Fixed Expenses 180.000

    Net Operating Income $60,000

    If new machine is installed :


    Sales ($20,000 units x $40) $800,000
    Less Variable Expenses ($20,000 units x $14) 280.000

    Contribution Margin 520.000


    Less Fixed Expenses ( $180.000 + $236.000) 416.000

    Net Operating Income $104,000

    C. Decision about installing new machine


    if just at monthly net operating income, Four S should buy
    and install the new machine as it generates more net operating income.
    At 20,000 units per month, variable expenses will decrease by $ 280,000
    (20,000 units × $ 14) and monthly fixed expense will only increase by $
    236,000. Therefore, the savings in variable costs are greater than
    times the increase in fixed expense.

    You might also like