145. A firm produces and sells a product with a contribution margin of $32 per unit. The firm
is presently selling 90,000 units and earning $240,000 in after-tax income. Taxes are $80,000
at a 25% tax rate. If the firm desires to increase its after-tax income to $300,000, how many
more units must it sell?
146. Abrams Co. has total fixed costs of $240,000 and a contribution margin ratio of 40%. If
rent expense increases by $5,000, how much will sales have to increase to cover this increase
in costs?
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147. A company is looking into two alternative methods of producing its product. The
following information about the two alternatives is available. If the company’s expected sales
volume is 35,000 units, which alternative should be selected? Prepare forecasted income
statements and compute degree of operating leverage to assess the alternatives.
Alternative#1
Alternative #2
Variable costs per unit ……..
$8
$12
Fixed costs …………………….
$240,000
$140,000
Selling price per unit ……….
$20
$20
148. Plymouth Industries incurs the following costs during the current year:
Depreciation of machinery ………………….
$15,000
Direct labor. ……………………………………..
6,000
Direct materials …………………………………
4,000
Executive salaries …………………………..…
20,000
Insurance ………………………………………….
2,000
Rent on building ……………………………….
8,000
Sales commissions …………………………….
10,000
Vehicle lease cost ……………………………..
5,000
Sales for the year were $80,000 and Plymouth Industries determined that only the direct
production costs (prime costs) and sales commissions are to be classified as variable costs; all
other costs are classified as fixed costs. Plymouth sold 400 units.
(a) Calculate the unit contribution margin and the contribution margin ratio for Plymouth
Industries.
(b) Plymouth Industries is considering plans that would increase the contribution margin ratio
for next year. Should it pursue these plans? Explain.
149. Hanover Hats produces specialty logo baseball caps for a variety of customers. Selected
cost data for Hanover follows: direct materials cost $8,000; sales commissions, $9,000;
depreciation on factory equipment, $21,000; factory labor, $16,000; factory lease, $24,000. If
Hanover Hats sells 6,100 caps at an average price of $12 for each cap, what is the company’s
contribution margin?
150. Abington Corporation provides the following data from a recent period for its
manufacture of shoes: variable manufacturing costs, $24,000; variable selling costs, $12,000;
and total fixed costs, $40,000. Sales were $60,000 based on 12,000 units sold during the
period. Calculate the contribution margin and the contribution margin ratio.
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151. A company has total fixed costs of $360,000. Its product sells for $40 per unit and
variable costs amount to $25 per unit. What is the break-even point in dollar sales?
152. The following information describes a product expected to be produced and sold by
Pepin Corporation:
Selling price …………………………………………….. $32 per unit
Variable costs …………………………………………… $27 per unit
Total Fixed costs ………………………………………. $850,000 per year
Required:
(a) Calculate the contribution margin per unit.
(b) Calculate the break-even point in units.
153. A company manufactures and sells spotlights. Each spotlight sells for $145. The variable
cost per unit is $98, and the company’s total fixed costs are $235,000. Predicted sales are
15,000 units. What is the contribution margin per unit?
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154. Duxbury Co. reports the following data for the current year:
Units Sold ……………………………………………………………… 1,200
Unit Sales Price ……………………………………………………… $30
Unit Variable Cost………………………………………………….. $10
Total Fixed Cost……………………………………….. $18,000
Required:
(a) Calculate Duxbury’s pretax income.
(b) Calculate Duxbury’s degree of operating leverage.
155. Outback Products reports the following information:
Total Contribution Margin………………….. $32,000
Total Fixed Costs……………………………. $28,000
Required:
(a) Calculate Outback Products’ degree of operating leverage (DOL).
(b) Outback Products forecasts a 6% increase in sales. What is the expected effect in percent
on pretax income?
156. Kelley Company and Mason Company each have sales of $200,000 and costs of
$140,000. Kelley Company’s costs consist of $40,000 fixed and $100,000 variable, while
Mason Company’s costs consist of $100,000 fixed and $40,000 variable. Which company will
suffer the greatest decline in profits if sales volume declines by 15%? Prepare income
statements and compute degree of operating leverage to assess.
157. Macleod Company’s product has a contribution margin per unit of $62.50 and a
contribution margin ratio of 25%. What is the per unit selling price of the product?
158. A company sells a single product that has a contribution margin ratio of 24%. If the
company’s total fixed costs are $84,000, what is the break-even point in dollar sales?
159. Hess Co. manufactures a product that sells for $12 per unit. Total fixed costs are $96,000
and variable costs are $7 per unit. Hess can buy a newer production machine that will increase
total fixed costs by $22,800 but variable costs will be decreased by $0.40 per unit. What effect
would the purchase of the new machine have on Hess’s break-even point in units?
160. Narrows Co. is considering the production and sale of a new product line with the
following sales and cost data: unit sales price $125; unit variable costs $75; and total fixed
costs of $140,000. Calculate the break-even point in units and in dollar sales.
161. Torville Company’s contribution margin income statement is presented below. Sales for
the current period consisted of 5,000 units. Determine the company’s break-even point in
dollars.
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162. A company manufactures a product and sells it for $120 per unit. The total fixed costs of
manufacturing and selling the product are expected to be $155,250, and the variable costs are
expected to be $75 per unit. What is the company’s break-even point in (a) units and (b) dollar
sales?
163. A product has a contribution margin per unit of $17 and sells at $25 per unit. If the
break-even point is 82,000 units, calculate (a) the variable costs per unit and (b) the total fixed
costs.
164. A firm provides the following sales data:
Expected unit sales.. 5,000 Unit variable cost….. $10
Unit selling price…. $16 Total fixed cost……. $12,000
Required:
(a) Calculate the break-even point in dollar sales.
(b) Calculate the margin of safety in dollar sales.
165. Wilson Co. is preparing next period’s forecasts. Total fixed costs are expected to be
$300,000 and the contribution margin ratio is expected to be 30%. The applicable income tax
rate is 25%.
(a) Calculate the company’s break-even point in dollar sales.
(b) If sales are $1,800,000 above the break-even point, what will income be (i) pretax income
and (ii) after-tax income?
166. The following information describes a product expected to be produced and sold by
Hadley Company:
Selling price ………………………………………………. $80 per unit
Variable costs ……………………………………………. $32 per unit
Total fixed costs ………………………………………. $630,000
Required:
(a) Calculate the contribution margin ratio.
(b) Calculate the break-even point in dollar sales.
(c) What dollar amount of sales would be necessary to achieve a pretax income of $120,000?
167. Identify items a, b, and c in the cost-volume-profit graph shown below.