Cerling company produces a variety of chemicals. One division makes reagents for
ID: 2365173 • Letter: C
Question
Cerling company produces a variety of chemicals. One division makes reagents for laboratories. the division's projected income statement for the coming year is sales 218000 X price $ 60.00 13080000 total var. cost. 7630000 contrb. margin 5450000 total fixed cost 4250000 operating income 1200000 Part 1 Contribution margin $5,450,000 Sales in units 13,080,000 Unit contribution margin Total fixed cost $4,250,000 Unit contribution margin Break-even units Unit contribution margin Sales price per unit $60 Contribution margin ratio Sales price per unit $60 Break-even units Break-even sales Part 2 Increase in revenues Contribution margin ratio Increased contribution margin Increase in advertising costs $250,000 Increased operating income Part 3 Sales exceeding estimate $1,500,000 Contribution margin ratio Underestimated profits Part 4 Sales $13,080,000 Break-even sales Margin of safety in dollars Part 5 Contribution margin $5,450,000 Operating Income $1,200,000 Operating leverage Higher percentage of sales 8% Operating leverage Increase in operating incomeExplanation / Answer
Part 1 Contribution margin $5,450,000 hint: given in problem Sales in units 218,000 hint: given in problem Unit contribution margin $25 hint: contribution margin / sales in units Total fixed cost $4,250,000 hint: given in problem Unit contribution margin $25 hint: from above Break-even units 170,000 Unit contribution margin $25 hint: from above Sales price per unit $60 hint: given in problem Contribution margin ratio 41.67% Sales price per unit $60 hint: given in problem Break-even units 170,000 hint: from above Break-even sales $10,200,000 hint: will equal break-even units x sales price per unit Part 2 Increase in revenues $1,000,000 hint: given in problem Contribution margin ratio 41.67% hint: from above Increased contribution margin $416,700 hint: increase in revenues x CM ratio Increase in advertising costs $250,000 hint: given in problem Increased operating income $166,700 hint: increase in CM less increase in adv costs Part 3 Sales exceeding estimate $1,500,000 hint: given in problem Contribution margin ratio 41.67% hint: from above Underestimated profits $625,050 hint: sales exceeding estimate x CM ratio Part 4 Sales $13,080,000 hint: given in problem Break-even sales $10,200,000 hint: from part 1 above Margin of safety in dollars $2,880,000 Part 5 Contribution margin $5,450,000 hint: given in problem Operating Income $1,200,000 hint: given in problem Operating leverage 4.54 Higher percentage of sales 8% Operating leverage 4.54 hint: from above Increase in operating income 36.32% hint: 8% x operating leverage