Ehrlich Enterprises prepared the following contribution format income statement based on a sales volume of 3,000 units (the relevant range of production is 1,000 units to 5,000 units): Contribution Margin Income Statement Sales $ 48,000 Variable expenses 30,000 Contribution margin 18,000 Fixed expenses 10,000 Net operating Income $ 8,000 Required: Show all calculations! (Answer each question independently and always refer to the original data unless instructed otherwise. Round all uneven answers to 2 decimal places.) How many units must be sold to achieve a target profit of $7,000? What is the margin of safety in dollars? If fixed costs increase by 12%, what will be the new breakeven point in units? What is the degree of operating leverage? Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 15% increase in sales?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Ehrlich Enterprises prepared the following contribution format income statement based on a sales volume of 3,000 units (the relevant range of production is 1,000 units to 5,000 units):
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Contribution Margin Income Statement |
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Sales |
$ 48,000 |
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Variable expenses |
30,000 |
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Contribution margin |
18,000 |
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Fixed expenses |
10,000 |
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Net operating Income |
$ 8,000 |
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|
|
|
|
Required: Show all calculations!
(Answer each question independently and always refer to the original data unless instructed otherwise. Round all uneven answers to 2 decimal places.)
- How many units must be sold to achieve a target profit of $7,000?
- What is the margin of safety in dollars?
- If fixed costs increase by 12%, what will be the new breakeven point in units?
- What is the degree of operating leverage?
- Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 15% increase in sales?
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