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Miami
Income Statements
2013
2014
Sales
$ 600,000
$ 840,000
Less variable expensea
(180,000)
(252,000)
Contribution marginb
$ 420,000
$ 588,000
Less fixed expenses
(300,000)
(300,000)
Net income before taxc
$ 120,000
$ 288,000
Tax expense
(48,000)
(115,200)
Net income
$ 72,000
$ 172,800
aVariable expense = Sales less contribution margin
bContribution margin = Net income before tax + Fixed costs
cNet income before tax =
b. Break-even sales
2014
Olson
$60,000 ÷ ($180,000 ÷ $600,000)
$60,000 ÷ ($288,000 ÷ $960,000)
$200,000
Miami
$300,000 ÷ ($420,000 ÷ $600,000)
$300,000 ÷ ($588,000 ÷ $840,000)
428,572
c. Olson
Profit before taxes = 0.12(of investment); tax rate = 40%
= 0.12($1,200,000) = $144,000
Profit after taxes = $144,000 ÷ (1 0.4) = $240,000
Olson
2013
$600,000 $200,000 = $400,000
2014
$960,000 $200,000 = $760,000
Miami
2013
$600,000 $428,572 = $171,428
2014
$840,000 $428,572 = $411,428
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Operating leverage = Contribution margin ÷ Profit before tax
Olson
2013
$180,000 ÷ $120,000 = 1.50
2014
$288,000 ÷ $228,000 = 1.26
Miami
2013
$420,000 ÷ $120,000 = 3.50
2014
$588,000 ÷ $288,000 = 2.04
e.
Olson
Miami
Contribution margin
$ 288,000
$ 588,000
Increase (1.15 × CM)
$ 331,200
$ 676,200
Less fixed costs
(60,000)
(300,000)
Net income before taxes
$ 271,200
$ 376,200
Taxes (40%)
(108,480)
(150,480)
Net income
$ 162,720
$ 225,720
f.
Olson
Miami
Contribution margin
$288,000
$ 588,000
Decrease (0.80 × CM)
$230,400
$ 470,400
Less fixed costs
(60,000)
(300,000)
Net income before taxes
$170,400
$ 170,400
Taxes (40%)
(68,160)
(68,160)
Net income
$102,240
$ 102,240
g. Olson
Miami
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49. a. Dayton Company
Income Statement (Variable Costing)
First Qtr. of 2013
Second Qtr. of 2013
Sales
$ 4,500,000
$ 5,250,000
Cost of goods sold
Beginning FG
$ 0
$ 588,000
CGM
Variable production
4,116,000
3,528,000
Available goods
$4,116,000
$4,116,000
Ending FG
(588,000)
(0)
Other variable costs
342,000
(3,870,000)
399,000
(4,515,000)
Contribution margin
$ 630,000
$ 735,000
Fixed costs
Production
$ 195,000
$ 195,000
Operating
42,800
(237,800)
42,800
(237,800)
Pre-tax income
$ 392,200
$ 497,200
Income taxes
(137,270)
(174,020)
Net income
$ 254,930
$ 323,180
b. 1. $75.00 ($58.80 + $5.70) = $10.50
2. $10.50 ÷ $75.00 = 14%
290 Chapter 9
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51. a. Atlantic Fish Company
Contribution Income Statement
For the Year Ended December 31, 2013
Sales
$ 3,600,000
Variable costs:
Cost of cod
$2,240,000
Shipping
160,000
Commissions
360,000
(2,760,000)
Contribution margin
$ 840,000
Fixed costs:
Selling and administrative
(650,000)
Income before tax
$ 190,000
Income tax expense
(76,000)
Net income
$ 114,000
b.
Selling price
$ 9.00
Variable costs per unit:
Cost of cod
$5.60
Shipping
0.40
Sales commissions
0.90
(6.90)
Contribution margin
$ 2.10
c. BEPu = FC ÷ CM per unit
Or
BEPu = FC ÷ CM%
d.
Degree of operating leverage:
DOL = CM ÷ Income before tax
DOL = $840,000 ÷ $190,000 = 4.4
Margin of safety:
Projected 2013 sales
$ 3,600,000
Break-even sales
(2,785,716)
Margin of safety
$ 814,284
fore income taxes
20% × 4.4 = 88% expected increase in operating profit
Projected profit before taxes (a)
$190,000
Expected increase in profit ($190,000 × 0.88)
167,200
Expected profit before taxes after 20% increase
$357,200
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f. Convert desired after-tax income to before tax income: After tax income ÷ (1 –
Tax rate)