# Compute the weighted-average unit contribution margin, assuming a constant sales mix.

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6.

value: 10.00 points

Houston-based Advanced Electronics manufactures audio speakers for desktop computers. The following data relate to the period just ended when the company produced and sold 41,000 speaker sets:

Sales

$

3,280,000

Variable costs

820,000

Fixed costs

2,310,000

Management is considering relocating its manufacturing facilities to northern Mexico to reduce costs. Variable costs are expected to average $16 per set; annual fixed costs are anticipated to be $2,240,000. (In the following requirements, ignore income taxes.)

Required:

1.

Calculate the company’s current income and determine the level of dollar sales needed to double that figure, assuming that manufacturing operations remain in the United States. (Omit the “$” sign in your response.)

Current income

150,000 $

Required sales

3,480,000 $

2.

Determine the break-even point in speaker sets if operations are shifted to Mexico.

Break-even point

35,000 units

3.

Assume that management desires to achieve the Mexican break-even point; however, operations will remain in the United States.

a.

If variable costs remain constant, by how much must fixed costs change? (Input the amount as positive value. Omit the “$” sign in your response.)

Fixed costsby

210,000 $

b.

If fixed costs remain constant, by how much must unit variable cost change? (Input the amount as positive value. Do not round your intermediate calculations. Round your answer to 2 decimal places. Omit the “$” sign in your response.)

Variable costsby

6 $

4.

Determine the impact (increase, decrease, or no effect) of the following operating changes.

a.

Effect of an increase in direct material costs on the break-even point.

b.

Effect of an increase in fixed administrative costs on the unit contribution margin.

c.

Effect of an increase in the unit contribution margin on net income.

d.

Effect of a decrease in the number of units sold on the break-even point.

rev: 10_30_2013_QC_38310, 02_27_2014_QC_46037

references

7.

value: 10.00 points

Tim’s Bicycle Shop sells 21-speed bicycles. For purposes of a cost-volume-profit analysis, the shop owner has divided sales into two categories, as follows:

Product Type

Sales Price

Invoice Cost

Sales Commission

High-quality

$

500

$

275

$

25

Medium-quality

300

135

15

Three-quarters of the shop’s sales are medium-quality bikes. The shop’s annual fixed expenses are $65,000. (In the following requirements, ignore income taxes.)

1.

Compute the unit contribution margin for each product type. (Omit the “$” sign in your response.)

Bicycle Type

Unit Contribution Margin

High-quality

200 $

Medium-quality

150

2.

What is the shop’s sales mix? (Omit the “%” sign in your response.)

Sales mix

High-quality bicycles

25 %

Medium-quality bicycles

75 %

3.

Compute the weighted-average unit contribution margin, assuming a constant sales mix. (Round your answer to 2 decimal places. Omit the “$” sign in your response.)

Weighted-average unit contribution margin

162.50 $

4.

What is the shop’s break-even sales volume in dollars? Assume a constant sales mix. (Round intermediate calculations to 2 decimal places. Omit the “$” sign in your response.)

Break-even sales volume

140,000 $

5.

How many bicycles of each type must be sold to earn a target net income of $48,750? Assume a constant sales mix. (Round intermediate calculations to 2 decimal places.)

Number of bicycles

High-quality

175

Medium-quality

525

references

8.

value: 10.00 points

A contribution income statement for the Nantucket Inn is shown below. (Ignore income taxes.)

Revenue

$

500,000

Less: Variable expenses

300,000

Contribution margin

$

200,000

Less: Fixed expenses

150,000

Net income

$

50,000

Consider each requirement independently.

1.

Show the hotel’s cost structure by indicating the percentage of the hotel’s revenue represented by each item on the income statement. (Input all amounts as positive values. Omit the “$” & “%” signs in your response.)

Amount

Percent

Revenue

500,000

Variable expenses

300,000

Contribution margin

200,000

Fixed expenses

150,000

Net income

50,000

2.

Suppose the hotel’s revenue declines by 15 percent. Use the contribution-margin percentage to calculate the resulting decrease in net income. (Omit the “$” sign in your response.)

Decrease in net income

30,000 $

3.

What is the hotel’s operating leverage factor when revenue is $500,000?

Operating leverage factor

4

4.

Use the operating leverage factor to calculate the increase in net income resulting from a 20 percent increase in sales revenue. (Omit the “%” sign in your response.)

Percentage increase in net income

80 %

references

9.

value: 10.00 points

A contribution income statement for the Nantucket Inn is shown below. (Ignore income taxes.)

Revenue

$

500,000

Less: Variable expenses

300,000

Contribution margin

$

200,000

Less: Fixed expenses

150,000

Net income

$

50,000

1.

Prepare a contribution income statement if the hotel’s volume of activity increases by 20 percent, and fixed expenses increase by 40 percent. (Input all amounts as positive values. Omit the “$” sign in your response.)

Revenue

600,000 $

Less: Variable expenses

360,000

Contribution margin

240,000 $

Less: Fixed expenses

210,000

Net income

30,000 $

2.

Prepare a contribution income statement if the ratio of variable expenses to revenue doubles. There is no change in the hotel’s volume of activity. Fixed expenses decline by $25,000. (Input all amounts as positive values except losses which should be indicated with a minus sign. Omit the “$” sign in your response.)

Revenue 500,000

$

Less: Variable expenses 600,000

Contribution margin (100,000)

$

Less: Fixed expenses 125,000

Net loss (225,000)

$

10.

value: 10.00 points

Hydro Systems Engineering Associates, Inc. provides consulting services to city water authorities. The consulting firm’s contribution-margin ratio is 20 percent, and its annual fixed expenses are $120,000. The firm’s income-tax rate is 40 percent.

Consider each requirement independently.

1.

Calculate the firm’s break-even volume of service revenue. (Omit the “$” sign in your response.)

Break-even volume

600,000 $

2.

How much before-tax income must the firm earn to make an after-tax net income of $48,000?. (Omit the “$” sign in your response.)

Before tax income

80,000 $

3.

What level of revenue for consulting services must the firm generate to earn an after-tax net income of $48,000? (Omit the “$” sign in your response.)

Service revenue

1,000 000 $

4.

Suppose the firm’s income-tax rate rises to 45 percent. What will happen to the break-even level of consulting service revenue?

The break-even level of consulting service revenue will change.

The break-even level of consulting service revenue will not change.

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