For requirement 6 I took the fixed costs “288900” and added the 23500 increase.
ID: 2340996 • Letter: F
Question
For requirement 6 I took the fixed costs “288900” and added the 23500 increase. Added 0 (the break even point) and divided it by 3.4 to get the per unit margin. 91883 was not the answer. Any help would be greatly appreciated. Thank you! 6. Management is currently in contract negotiations with the labor union. If the negotiations fail, direct labor costs will increase by 10%, and fixed costs will increase by $23,500 per month. If these costs increase, how many units will the company have to sell each month to break even? 7. Return to the original data for this question and the rest of the questions. What is the company's current operating leverage factor (round to two decimals)? 8. If sales volume increases by 3%, by what percentage will operating income increase? 9. What is the company's current margin of safety in sales dollars? What is its margin of safety as a percentage of sales? 10. Say the company adds a second size of SD card (512GB in addition to 256GB). A 512GB SD card will sell for $50 and have variable cost per unit of $27 per unit. The expected sales mix is nine of the 256GB SD cards for every one of the 512GB SD cards. Given this sales mix, how many of each type of SD card will the company need to sell to reach its target monthly profit of $260,100? Is this volume higher or lower than previously needed (in Question 5) to achieve the same target profit? Why?Explanation / Answer
6.calculate the required break even point in units if direct labour cost increase by 10% and fixed cost by $23500 per month
New Contribution margin per unit =Original Contribution per unit -Increase in direct labour Cost per unit
=$3.4 -$8*10%
=$3.4-$.8
=$2.6
New Fixed Expense =Original Fixed Exp +Increase in Fixed expense
= $288900+$23500
=$312400
Break even point in units =New Fixed Expense/New contribution per unit
=$312400/$2.6
=120154 units
7. Operating leverage factor =Contribution Margin/Operating income
Calculation of the company current leverage factor
operating Income =$340000-Fixed Expense
=$340000-$288900
=$51100
Operating Leverage factor =$340000/$51100
=6.65
8.Percentage Increase in Operating Income =% increase in sales * Operating Leverage Factor
=3%*6.65
=19.95%
9. Margin of safety =Expected Sales -Breakeven Sales
Expected Sales =$25*100000
$2500000
Contribution Margin Per unit
=$3.4
Contribution Margin ratio =$3.4/$25*100=13.6%
Fixed Cost =$288900
Break Even Point =$2124264
Margin of Safety in Dollars =Expected Sales -Break Even Sales
=$2500000-$2124264
=$375736
10.Calculate the Contribution Margin
256 Gb 512 GB Total
Selling price per unit $25.00 $50
variable cost per unit $21.6 $27
Contribution Margin Per unit $3.4 $23
Sales Mix 9 1 10
Contribution Margin 30.6 23 53.6
Weighted Average Contribution margin per unit =Contribution Margin/Sales Mix
=$53.6/10
=$5.36
Fixed Expense =288900
Target Profit =260100
Weighted average contribition per unit =$5.36
Required Sales in Total Units =Fixed Exp +target Profit/Weighted average contribution margin
= $288900+ $260100/$5.36
=102425 units
Required Sales of 256 Gb Card =102425 *9/10
=92183 units
Required Sales of 512 Gb Card =102425*1/10
=10243 units