Management Accounting Paper

1154 Words Jan 9th, 2018 5 Pages
Contribution margin for the present and proposed operations are presented in the table below:
Contribution Margin of Present Operation
Contribution Margin of Proposed New Operation
Present Operation
Per Unit
Per Percent
Proposed Operation (Expected)
Per Unit
Per Percent
Sales (40,000 units)
$800,000
$20
100%
$800,000
$20
100%
Variable expenses
560,000
$14
70%
$14 -6 =$8 x 40,000
320,000
$8
40%
Contribution margin
240,000
$6
30%
480,000
12
60%
Fixed expenses
192,000
$4.8
432,000
$10.8
Net operating income
$48,000
$48,000
2a. The degree operating leverage for present and proposed operations is as follows:
Present Operations
Proposed Operations
Contribution margin
$240,000
$480,000
Net operating income
48,000
48,000
Degree operating leverage
$240,000 / 48,000 =5
$480,000 /48,000 =10
% Increase in Net Operating Income
50%
100%
(2b). The paper uses the equation method to calculate the company breakeven point in dollars for the present and propose operations and revealed as follows:
Present Operation
Profits = (Sales - Variable expenses) - Fixed expenses
By rearranging the equation, the equation becomes as follows:
Sales =Variable expenses + Fixed expenses + Profits
=$20Q = $14Q + $192,000 + $0
$20Q - $14Q = $192,000
$6Q =$192,000
Q =$192,000 ÷ 6 per unit
Q = 32,000 units.
Thus, breakeven point in…

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